TIPS' Yields Show Fed Has Lost Control of Inflation

[swag]

Source: Bloomberg

March 10 (Bloomberg) -- Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.

The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative since Feb. 29, and traded today at minus 0.17 percent. The notes, which were first sold in 1997, have never before traded below zero. Even so, firms from Deutsche Asset Management to Vanguard Group Inc., the second- biggest U.S. mutual fund company, say TIPS are a bargain.

For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed Chairman Ben S. Bernanke will be able to tame inflation once policy makers stop cutting interest rates.

``The way TIPS are trading now, investors believe headline inflation will stay lofty and are willing to give up the real yield for that,'' said Brian Brennan, a money manager who helps oversee $11 billion in fixed-income assets at T. Rowe Price Group Inc. based in Baltimore. Prices for the securities indicate ``a real concern of a recession and high headline inflation,'' he said.



Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aIbnAuYWv3A0&refer=home

[Robbien]

1. Yet the Feds are still planning on more rate cuts

Someone needs to grab our crazy uncle Bernanke and lock him up in the attic.

[Javaman]

2. Just picked up a new wallet today...

[roguevalley]

7. oh sweet god. this is sooooo funny. And tragic. but funny. :)

[Nay]

8. HAHAHAHA! New wallet! That's funny! But what I don't understand

is...when do our wages inflate so we have that wheelbarrow full of money? It seems to me that the inflation is only on the side of prices, not wages. If the Fed wants to inflate us out of this financial trouble, wages have to go up too, right?

[happygoluckytoyou]

3. GONNA PAY MY MORTGAGE OFF IN 2 YEARS WITH A BUCKET OF CHEAP CASH

[jody]

4. Fed didn't lose control, it never had control of inflation. n/t

[MilesColtrane]

5. Hope that holographic ink on dollars isn't toxic.

I want to be able to breathe when I start burning them for heat.

[Rex]

6. Never had control, that is why we regulate the market.

Or we did until these modern pirates showed up, now we just hope to buy gas and milk without spending a fortune. Welcome hyperinflation and stagnation, two assholes that hang around long after the party is over.