From Illusion of Prosperity:
I bought a 19-year TIPS last June.
It was actually a bit less than 19 years. It will mature on April 15,
2032. That means it is now an 18-year TIPS. I locked in a 1.06% real
yield with intent to hold to maturity.
As of today:
The 20-year TIPS yields 1.07%.
The 10-year TIPS yields 0.53%.
Using interpolation, those purchasing the 18-year TIPS now are now only getting 0.96% (1.07% x 0.8 + 0.53% x 0.2 = 0.96%).
I therefore cannot complain about my most recent purchase (or any previous TIPS purchase for that matter).
Real yields have been falling rather consistently since the early 1980s.
It has rarely paid to procrastinate when a real yield became
acceptable. For what it is worth (as a permabear), I feel today's
long-term real yield is acceptable. If I had more money to deploy
(beyond emergency savings), I would buy more long-term TIPS at these
levels.
1. There is a whopping $12.2 trillion still willing to earn a nominal yield of just 0.084%. Talk about a slow painful death (of inflation adjusted savings).
2. I think the direction of this economy over the long-term is directly
tied to the direction of real yields over the long-term. Waiting around
for better real yields is a bit like waiting around for a better economy
(temporary bubbles notwithstanding). Good luck on that one.
3. I don't think the global economy can tolerate higher real yields (our
economy in particular). I would point to what these "low rates" have
done to recent stock market activity, recent emerging market activity,
and holiday sales....MORE
And from his earlier post on real yields:
