Personally, I am not going there. I don’t short, that’s not my style, and I definitely don’t feel I could accurately predict the future trend of TIPS mutual funds and ETFs, although I don’t own any at the moment and have repeatedly pointed out that mutual funds investing in TIPS are riding near 5-year highs.
So along comes The Inflation Trader blog on SeekingAlpha.com with a post titled, ‘Don’t count Bill Gross out just yet.’ (Not that I would ever count Bill Gross out. … Come on.)
Inflation Trader, I will just call him IT, points out that bonds had a big selloff on Tuesday, and that also affected TIPS, by the way. Since I am following the 30-year TIPS to be auctioned next week, I was interested in this development Tuesday:
That 30-year yield took a very nice leap upward on Tuesday, and anything getting it closer to 2% would make next week’s 30-year TIPS auction a lot more appealing. But the point is, Tuesday was not kind to Treasuries. (Wednesday was another matter, and I will write about that tomorrow.)
Back to IT, who writes:
Maybe bond guys just realize that if all of this bad news is in place, and not many folks are expecting a cheerful resolution from the Greek crisis, there are few reasons for Treasuries to rally further. … I also wonder if it is time to be short TIPS.
IT wrote this before Wednesday’s inflation numbers, which were a little worse than expected, so that counters (somewhat) the rest of his argument, which includes:
A small miss lower on CPI will not change the fact that the overall trend is upward, but it would serve to reduce the fear premium currently embedded in TIPS. A miss higher would keep that fear premium stable or even increase it a little bit, but that would probably be in the context of rapidly rising rates overall.
My point is that there is an anti-TIPS sentiment brewing, versus the overwhelming pro-TIPS sentiment of the last several months. This is a lot more important for people who invest in TIPS mutual funds and ETFs. It is less important for people – like me – who invest in TIPS and hold them to maturity.
But what about that 30-year TIPS auction next week? Time to ponder.