Ahead of the Tape
Uncle Sam Has an Inflation Deal for You</br></br>Talk about money for nothing.</br></br>Late last month, the U.S. Treasury issued debt at a record-low yield to maturity of negative 1.286% over nearly five years. Of course, there was a catch: The government also is obligated to compensate the holder of the instrument, a Treasury inflation-protected security, for any change in the consumer-price index between now and when it matures.</br></br>The buyers of the TIPS were betting on inflation of at least 2% to earn the break-even return -- the amount that would at least equal the 0.71% they could have received on an ordinary five-year Treasury the same day. That is well above the 1.4% year-on-year gain in the consumer-price index reported for July, or the 1.5% gain for August expected on Friday.</br></br>And the amount that investors have been willing to pay has risen noticeably. Ever since talk heated up that the Federal Reserve will engage in a third round of bond buying, implied bets on inflation have, too. The 10-year break-even rate has risen to 2.376% currently from 2% in late July.