I have pretty much lost my appetite for Thursday’s auction of a new issue 10-year Treasury Inflation-Protected Security. Why? It’s hard to swallow a jawbone.
The jawboning has been coming from Federal Reserve Chairman Ben Bernanke, who last Wednesday afternoon tried to scale back fears of future Fed ‘tapering’ of its aggressive bond buying. Again today, speaking to Congress, Bernanke went dovish on quantitative easing. From the Wall Street Journal report:
Federal Reserve Chairman Ben Bernanke amplified his efforts to calm markets about the end of the Fed’s easy-money policies, pointing to a variety of economic risks that could persuade the central bank to keep its large bond-buying program going in the months ahead. …
“Because our asset purchases depend on economic and financial developments, they are by no means on a preset course,” he said. … In fact, if necessary, the Fed “would be prepared to employ all of its tools, including an increase [in] the pace of purchases for a time, to promote a return to maximum employment in a context of price stability.”
The result. Last Wednesday, by Treasury estimates, a 10-year TIPS was drawing a yield to maturity of 0.64%. Today, according to Bloomberg’s real-time estimates, that yield has fallen to 0.30%. That’s a fall of 34 basis points in 5 market days. Here is how jawboning looks in a 5-day chart for the TIP ETF (its price rises when its yield falls):
I am not a fan of buying something while the price is soaring. I haven’t ruled out participating in this 10-year TIPS auction, but my enthusiasm definitely has waned. I think I will wait until Thursday morning to decide.
I am convinced that higher interest rates (and TIPS yields) are ahead. That means the best strategy is being patient for buying opportunities.