Another 10-year TIPS auction, and another world crisis …

I am getting tired of this pattern. I will attempt to offer no proof, but I am getting a strong feeling that just before every significant TIPS auction, we get a world crisis that drives up the prices of Treasurys, especially TIPS.

Thursday, we will get a reopening of a 10-year TIPS, and yields to maturity had been trending up toward the lofty level of -0.5%, meaning a half percentage point less than inflation over 10 years. That’s a lousy investment, but better than several recent 10-year TIPS auctions.

At the same time, Europe unloads the most idiotic scheme ever — taxing bank accounts in Cyprus to bail out banks for their foolish investments. Simply put, taxing the wise to bail out the fools. From New York Times coverage:

In a rare move, Cyprus is trying to raise around 5.8 billion euros ($7.5 billion) from a one-time bank charge on local deposits. … “If the problem escalates, the entire euro zone banking system could implode,” said Cormac Leech, a banking analyst at Liberum Capital, in London.

Fearing similar moves to those in Cyprus, local depositors in countries like Spain and Italy may look to shift their money to banks in stronger European economies. … “This is certainly new territory,” said Pete Hahn, a banking professor at Cass Business School in London. “What is confronting Cyprus is a unique situation, but the idea could be applied in other places in Europe.”

For even more fun, read Michael Ashton’s E-phinay post today, ‘Stealing Really Is That Bad.’:

Here is the problem: you didn’t ask them if they would “accept” at least a “minor” bailing out. You ordered people who didn’t need a bailout – savers with earned balances in the banks – to pay for the bailout. I daresay that it doesn’t seem “minor” to those who had their money stolen to save someone else. …

Now, in the micro picture none of those reflections are very market-oriented, but in the macro picture they certainly are. We all have to deal on a day-to-day basis with the reality that markets are nakedly manipulated by central banks these days.

In the face of this amazing stupidity, investors (the wise ones, not the fools) are naturally heading to safety, and that means U.S. Treasurys. The 10-year Treasury closed today at 1.96%, 5 basis points up from Friday. The TIP ETF was up 0.2% today.

OK, that’s not Earth-shattering, but it broke the trend toward a favorable rate in Thursday’s 10-year TIPS auction. Today, CUSIP 912828UH1, the one being reopened Thursday, closed on the secondary market with a yield to maturity of -0.617, down from Friday’s close of -0.582%.

Again, not disastrous, but the trend is now moving against buyers of this week’s auction.

All in all, TIPS-week Monday could have been a lot worse.


About Tipswatch

Author of blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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