Just how pricey are real-return bonds these days? Insanely so, says Eddy Elfenbein of the Crossing Wall Street blog. He points to the yield curve for Treasury Inflation Protected Securities. These are the U.S. government bonds that carry an automatic adjustment for inflation. Thanks to investors’ thirst for safety, they’ve been bid up to nosebleed levels.
At current rates, TIPS are guaranteed to lose you money in real terms over the next two years. They won’t start to produce a 2% real return for at least four years. And, of course, that’s all before tax. “I can’t help but think it’s the Treasury equivalent of the Internet bubble from 10 years ago,” writes Elfenbein.
Freelance business journalist Ian McGugan blogs for the Financial Post.