Sunday, June 29, 2008

Real Yields Negative!

The current (6/27/08) yield to maturity on Treasury Inflation Indexed Bonds is ... -2% over 1 year! And it makes sense, as the current CPI is running about 4%, and the one-year rate is 2.3% on nominal bonds. Gee, makes one want to simply go out and invest in commodities. Oh wait! Lots of people are doing that trade already.

I think it's safe to call current monetary policy 'easy'. If one could borrow at the risk-free rate, a pretty brainless strategy should generate a positive edge. But even A rated banks are paying 2% above Treasuries to borrow these days, which is astronomical. People are pretty panicked, it seems.


J said...

No wonder they are panicky, after what we have recently learned about ratings and about banks. And about the ¨mighty¨ dollar.

Anonymous said...

i thought we've established ratings are useless by now. 2% is too low. you think only 2% of banks will go belly up before maturity?

Anonymous said...

followup to above: