{"id":238,"date":"2008-05-11T13:38:20","date_gmt":"2008-05-11T21:38:20","guid":{"rendered":"https:\/\/bayesianinvestor.com\/blog\/index.php\/2008\/05\/11\/negative-interest-rates\/"},"modified":"2015-10-07T20:38:11","modified_gmt":"2015-10-08T04:38:11","slug":"negative-interest-rates","status":"publish","type":"post","link":"https:\/\/bayesianinvestor.com\/blog\/index.php\/2008\/05\/11\/negative-interest-rates\/","title":{"rendered":"Negative Interest Rates"},"content":{"rendered":"<p>For more than 2 months, Treasury Inflation-Indexed Notes maturing within 2 years have been selling at prices that apparently mean their yields are negative (e.g. see <a href=\"http:\/\/research.stlouisfed.org\/fred2\/series\/DTP10J10\">here<\/a> and <a href=\"http:\/\/research.stlouisfed.org\/fred2\/series\/DTP10J09\">here<\/a>). This isn&#8217;t the first time people have apparently paid a government to hold their money, but I can&#8217;t think of a previous case where yields reached -1 percent.<br \/>\nWhat can cause such a perverse situation? An expectation that the CPI would overstate inflation by as much as 1 percent would mean appearances are misleading and investors do expect to make money on those notes. I could make a case for that by focusing on the way that the CPI&#8217;s reliance on rents to measure housing costs hides the effects of dropping home prices. But most evidence about people&#8217;s inflation expectations (e.g. <a href=\"http:\/\/research.stlouisfed.org\/fred2\/series\/MICH\">the University of Michigan Inflation Expectation report<\/a>) say they expect more inflation than what can be inferred from the Treasury Inflation-Indexed Notes about expected CPI change.<br \/>\nSo I&#8217;m inclined to conclude that we&#8217;re seeing investors paying abnormally large amounts in order to get liquidity, and probably plan to redeploy those assets somewhere else within a few months. If we see a big financial crisis soon, that strategy may pay off. But having people prepare for financial crises tends to reduce their magnitude, so I&#8217;m skeptical and am short t-bond futures.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>For more than 2 months, Treasury Inflation-Indexed Notes maturing within 2 years have been selling at prices that apparently mean their yields are negative (e.g. see here and here). This isn&#8217;t the first time people have apparently paid a government to hold their money, but I can&#8217;t think of a previous case where yields reached [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[18],"tags":[34],"class_list":["post-238","post","type-post","status-publish","format-standard","hentry","category-investing","tag-stock-market-crash"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p80O1l-3Q","_links":{"self":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/238","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=238"}],"version-history":[{"count":1,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/238\/revisions"}],"predecessor-version":[{"id":604,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/238\/revisions\/604"}],"wp:attachment":[{"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=238"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=238"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bayesianinvestor.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=238"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}