I'll Take That Negative YTM Treasury

Recently the U.S. Treasury sold new bonds at a record low YTM of negative 1.286 percent over five years. The reason investors were willing to a take a negative YTM is that the bonds are TIPS. With TIPS, the government increases the par value each year by the inflation rate. Given that regular Treasuries with the same maturity had a YTM of .71 percent, buyers of the TIPS are expecting inflation to average about 2 percent over the next five years in order to break even. The expected break even inflation rate is 2.376 percent over 10 years and 2.39 percent over 30 years, all well below the average inflation rate of 3.1 percent since 1926.