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Subject:  Re: Implications of Fed pause Date:  8/9/2006  1:13 PM
Author:  ranshdow Number:  17780 of 36394

If the market believes the Fed, that inflation is due to moderate, then the inflation differential of TIPS will be relatively low, at the next auction. Despite the well-known drawbacks of government manipulation of the CPI-U, does it make sense to lock in, and buy TIPS later this year?


A few weeks back someone posted a research paper on Mish's board which had in it, among other things, a graph of CPI vs. CPI-U. I tried to find the thread but could not. What was interesting to me is that, for the duration shown, CPI-U seemed to lag CPI by a few months. I posted a quick reply in that thread stating as much. This is reasonable, if one assumes that the cost of energy will feed into the cost of production, thus raising core CPI further down the line. Thus I haven't been surprised that core CPI has been creeping up lately. As you know, this bodes well for TIPS yields, current and future issues, and should increase the dividend payment, if not the NAV, of TIPS bond funds.

My TIPS bond fund (TIP) dividend has been increasing since the May dividend, and the market price for shares has been creeping up as well over the last few weeks, from a low back in July.
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