TIPS of the iceberg

25 Oct 2010 By Martin Hutchinson

Demand was strong for Treasury s $10 bln of fiveyear inflationprotected securities yielding negative 0.55 percent. This may help manage the Fed s inflation expectations, but will also invite investors to take risks to offset the negative return. Expect more bubbles as a result.

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The U.S. Treasury on Oct. 25 sold $10 billion of Treasury Inflation Protected Securities, with a maturity date of April 15, 2015, at a yield of negative 0.55 percent. The issue was a reopening of an $11.2 billion issue carried out in April with a 0.5 percent coupon. The issue price for the new bonds was 104.749, or 105.509 including 0.725 percent upward indexation since April.

Goldman Sachs, in a research note published Oct. 25, suggested the Fed at its Nov. 23 meeting might announce $500 billion of quantitative easing and that its eventual goal could be as much as $2 trillion.

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