Deflation

 

For another purpose, I had reason to look up TIPS yields. 

The current Treasury Inflation-Protected Security (TIPS) yields are -1.27% (5 years) -0.98% (10 years) and, amazingly, -0.35% (30 years). You pay them 0.35% per year for a stable real value. I did not realize it was this low. 

The Fed has, of course, made big announcements about their desire for higher inflation, how they will keep rates low essentially forever, and tolerate inflation above target for a while.  I'm still curious whether persistently lower interest rates raise or lower inflation. The TIPS market has not shown a deathbed conversion to 2% inflation, that's for sure.  More on the Fed's new strategy later. 

The context. I serve on the advisory board of a small nonprofit that has an endowment. The endowment is intended to be perpetual. We're discussing the equity vs. fixed income allocation. I wanted to lay out the options. If they want absolute safety of principal and payout, under a perpetual constraint, they can pay out... -0.35% of the principal every year! I advised they accept some risk in the payout stream. 

from The Grumpy Economist https://ift.tt/2RsxgBe