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Subject:  TIPS watch Date:  3/17/2006  1:51 PM
Author:  WendyBG Number:  15810 of 36325

Today's Wall Street Journal: "...the real reason long-term Treasurys rallied is they have become despised as an asset class. [so slightly lower-than-expected inflation news caused a bounce.]

... just about any survey of sentiment indicates bearishness toward bonds. Primary dealers -- the firms that deal directly with the Federal Reserve -- are, on balance, betting against the 10-year Treasury note...

...most Wall Street economists expect long-term rates will be higher in six months. In another sign of bearishness on long-term bonds, professional bond managers surveyed by ISI Group show a marked preference for short-term Treasurys."

I am still deciding whether to buy TIPS, at the April auction. The yield of both the 5 and 10 year TIPS has risen, recently, to 2.01% and 2.15%, respectively (the principal is inflation-adjusted). This is still well below the 50-year average of "real" (inflation-adjusted) rates, on long bonds.

The inflation differential (the difference between the regular T-Note and TIPS yield) has dropped, over the past couple of weeks (to 2.61% and 2.52%, respectively).


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