Imagine not just loaning the government money for free, but at negative nominal rates. Another fresh Treasury auction of 10-year inflation-protection TIPS just went off yet again at negative interest rates. We recently saw that a T-bill auction went off for a net 0.000% yield and investors have been paying for the right to own these inflation protection notes for a while now.

You have seen longer-term rates rise in recent days and we have seen that Goldman Sachs is now calling for higher rates on the longer end of the Treasury yield curve by this year’s end. The thought of a negative interest rate today for the chance that your interest payments will ratchet up in the future is a hard sell for many investors. For those who just need capital preservation and protection against inflation this is a totally different story.

Today’s Treasury auction was technically a 9-year and 8-month maturity which will come due on January 15, 2023. The 0.125% coupon went off at an adjusted price of $104.272695 for a negative current yield to maturity of -0.225%. Demand was still strong as the bid to cover ratio was 2.52 as over $32.7 billion was tendered and $13 billion was accepted. Again, if short-term rates rise then this coupon will adjust higher.

Goldman Sachs also projecting that the inflation-adjusting Treasury TIPS market will go into positive yield territory by the end of this year, but that was certainly far from the case today.

There is even an ETF strategy for this as well with two ETFs covering the TIPS markets. The iShares Barclays TIPS Bond (NYSE: TIP) is much more actively traded and then there is also the SPDR Barclays TIPS (NYSE: IPE). Both are trading down marginally on the day.

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