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bond yields rise with inflation http://www.hussmanfunds.com/rsi/yieldsinflation.htm http://www.hussmanfunds.com/rsi/yieldsinflation.htm

• vanschelven 16y ago
  As far as I understand it, your statement is correct at face value, but incorrect in the context of this discussion, since we're discussing the relative yields of bonds and other investment vehicles over a long time period. Say use all my money to buy a long term bond today. If inflation would rise tomorrow, you correctly point out that bond yields of tomorrow's bonds will rise. However, mine is fixed. This means I'm hit, firstly, by the inflation, and secondly, by the fact that the price of the bond will fall. (The price will fall because competing bonds will have better yields tomorrow). Correct me if I'm wrong.
  • lsc 16y ago
    my understanding is that you can buy government bonds indexed to certain measures of inflation. TIPS, I believe they are called. Obviously, they yield less than a regular bond, if inflation doesn't go up, but they do keep you in positive territory, if inflation does go up.
    • vanschelven 16y ago
      Indeed. However, TIPS also provide a nice counterpoint against mjs' claim that "If you're getting less than 3% out, stocks aren't worth it." In 2010 TIPS did not necessarily keep you in positive territory.
    • smeatish 16y ago
      TIPS currently have negative real yields - you pay for the privilege of hedging against inflation. When inflation is expected, TIPS do not necessarily guarantee positive real returns. http://www.bloomberg.com/news/2010-10-25/treasury-draws-negative-yield-for-first-time-during-10-billion-tips-sale.html http://www.bloomberg.com/news/2010-10-25/treasury-draws-nega...