interest rates are negative

Here’s the US Dept of the Treasury:

note that the interest rates are negative even out to 10 years.


These rates are commonly referred to as “Real Constant Maturity Treasury” rates, or R-CMTs. Real yields on Treasury Inflation Protected Securities (TIPS) at “constant maturity” are interpolated by the U.S. Treasury from Treasury’s daily real yield curve. These real market yields are calculated from composites of secondary market quotations obtained by the Federal Reserve Bank of New York. The real yield values are read from the real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years. This method provides a real yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.

As Ezra Klein says, the current fiscal policy of angsting about the debt is exactly backwards:

The policies to create jobs cost money, making it harder to reduce the deficit. The policies to reduce the deficit require you to cut spending and raise taxes, which tend to destroy jobs.
But, happily, America’s lucky situation means you don’t have to choose. We can borrow for nearly nothing right now — actually, less than nothing after accounting for inflation — and so the obvious answer to your dilemma is to borrow now to create jobs while putting in place a significant deficit-reduction plan that would begin once unemployment fell below, say, seven percent. If you didn’t want to work very hard at coming up with all these plans yourself, you could just pass the White House’s American Jobs Act now and then the Simpson-Bowles deficit-reduction plan after that.


The fiscal cliff ended with more worst-of-both-worlds legislating. Compared to policy in 2012, the final deal is contractionary: It lets the payroll tax cut expire and raises taxes on the wealthy. JP Morgan estimates that the final deal will cut GDP growth by 0.6 percent in 2013. IHS Global Insight says the damage will be more like 0.4 percent off GDP. Either number is better than the recession we likely would’ve faced after a full-on swan dive off the fiscal cliff. But neither is good.
Moreover, the final fiscal cliff deal does little to reduce deficits. It doesn’t come anywhere near stabilizing debt-to-GDP over the next decade.
Which is to say that the fiscal cliff deal fails all three of our premises about the U.S. economy. It doesn’t solve the unemployment problem, or even help improve it. It doesn’t solve the deficit problem, or even do much to improve that. And it doesn’t take advantage of the insanely cheap money the United States has access to right now.

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  • fche

    Nothing material has changed since the last time you brought up this topic.

  • “note that the interest rates are negative even out to 10 years.”

    Only if we continue keep someone like Obama that will keep the country’s growth negative, employment low and spending through the roof.

    That is precisely what Obama has done. The president is supposed to control spending, that is what the veto is for. Conversely this president threatens to veto if they don’t spend ( and tax ) more.

    My apologies to Carter for previously calling him the worst excuse for a President ever.

  • Paul S.

    Agree with fche so I won’t bother reposting my comment from the last thread that essentially went ignored anyway.

    I will add that your headline is misleading. In your last post on this you referenced a Treasury auction in 2010 that settled in the negative. At least two commenters pointed out that it was a TIPS auction, but I guess you ignored those and will probably ignore me here, but whatever.

    Your link here represents TIPS curve, not a nominal treasury curve, meaning they are inflation protected bonds. In other words, the market is willing to pay a premium for inflation protection of their principal, because inflation is a serious concern, not that they are happy to pay the government to borrow their money as you suggested in the past thread and are implying here.

  • Dishman

    What the others said above.

    We’ve been trying this Keynesian Stimulus stuff since 2008, and it hasn’t been working. What makes you think it will be different if we just keep at it?

    Damned Keynesians may well be the death of us all.

  • Scott


    As the other propagandist that Aziz idolizes (Paul Krugman) would say: The fact that the Keynesian stimulus hasn’t worked is proof that we need more of it.

    And War is peace. Freedom is slavery. Ignorance is strength.

  • Paul, that convo was old and I probably just never saw your comment. Please do repost it.

    My understanding of TIPS was that if it is negative, that implies a lack of concern over inflation, and almost an expectation of deflation. If that’s incorrect then kindly educate me.

  • Dishman

    TIPS bonds pay out at rated interest rate + inflation.

    The difference between TIPS and non-indexed Treasuries is the market-predicted inflation rate. That predicted rate is currently artificial, because the Fed is buying non-index Treasuries, but not TIPS. This pushes down the yield on the non-indexed Treasuries, lowering the predicted inflation. In fact, if IIUC, the Fed is buying something like 85% of all non-indexed Treasuries, so we have no information at all.

  • Paul S.


    Think of it this way. Three risks with holding bonds:

    Interest rate risk – if market rates rise, your bonds lose value. Opposite is also true, if rates fall, your bonds will gain in value.

    Inflation risk – risk of interest and principal payments being paid back in dollars worth less than those you lent out

    Default/Credit risk – risk that the issuer of the bond will simply not pay you back

    The only difference between TIPS and like duration Treasurys is the inflation risk. TIPS have none because interest and principal payments are indexed to inflation (based on CPI) so the difference in yields represent what the market is willing to pay to compensate for the inflation risk. (This is sometimes referred to as implied inflation, and while it makes sense theoretically, there are problems with assuming it is strictly true.) If the yield is negative, as they currently are in TIPS, then investors are willing to lock in a loss to hedge against a potential larger loss through inflation. It really isn’t different than the premiums one pays for car or home insurance.

    TIPS do not, however, adjust down for deflation. Deflation is good for a bondholder because you are being paid back in dollars that can buy more than those you lent out. If you thought deflation was coming then you would want to buy nominal treasurys and avoid paying the premium associated with TIPS for the inflation protection that you do not feel you need.

    The reason I said you ignored my comment in your last post on this subject is because you responded to other comments days after I posted mine. If you are interested, here it is:

  • Aziz, just because I can get a credit card with a zero percent interest rate doesn’t mean that I should get one and max it out buying beer, pizza and strippers. It may be prudent to invest money wisely. However I don’t think that our government is capable of spending it wisely. I think it is appropriate to help the unemployed, but I have real questions about whether it is helpful or harmful to extend employment benefits beyond 26 weeks. One source on the Internet pointed out that most HR departments ignore resumes from people who have been unemployed longer than 26 weeks. They don’t tell anyone this, they just do it. If I were on unemployment, I’d find the best job I could before the unemployment ran out. Is it really helpful to give people an extra 73 weeks of unemployment benefits if nobody will hire them?

  • Paul S.

    Paul, that convo was old and I probably just never saw your comment. Please do repost it.

    I did and you vanished again. Maybe this convo is now old too, but on the outside chance you are still interested in your own post I’ll add this reference point.

    I spoke to a bond manager today, a guy who manages a bond portfolio in the billions, he has bought TIPS over the last 18 months or so and has made a lot of money for his shareholders on them. When I asked him why they have negative yields and why he still owns them at negative yields he cited inflation fears, he noted that each time another round of quantitative easing (money printing) is announced, or expected to be announced, the yields fall further into the negative. This increasing negative yield represents the increasing premium the market is willing to pay for inflation protection.