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U.S. Treasury sells inflation protected bonds. Why?

Marketplace Staff Oct 26, 2010
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U.S. Treasury sells inflation protected bonds. Why?

Marketplace Staff Oct 26, 2010
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TEXT OF STORY

STEVE CHIOTAKIS: First, to the bond market, where the government for the first time ever, is selling inflation protected Treasury Bonds, Tips — as they’re known — at a negative yield. In English, investors paid the government for the opportunity to lend it money.

Marketplace’s Nancy Marshall Genzer reports.


NANCY MARSHALL GENZER: Imagine this. You lend me a hundred bucks. Then you pay me $5 and 50 cents for the privilege of lending to me. That’s basically what’s happening with a special, inflation protected bond the government is selling. Yesterday it had a negative rate of return. Investors paid a hundred $105 and 50 cents for every $100 of these bonds the government sold. It sounds crazy, but it could pay off for investors. These bonds are worth more if inflation rises. The Federal Reserve has hinted that it’s going to pump even more money into the financial system. That would push down the value of the dollar. It would take more dollars to buy stuff. And that would probably increase the inflation rate. Economists had been worried about deflation. That is, where the economy is stagnant. No one will buy anything because they think prices will just keep falling. Now, the tables may have turned toward inflation.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

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