Inflation-protected securities sold at negative yields for the first time ever on Monday as traders anticipate that the Federal Reserve will start a new round of asset purchases.
There are liquidity issues, hedging issues, reinvestment risk issues, supply-side finance management issues, and so on. This does not show that our real economy has a negative real rate of return. Maybe, for reasons of institutional constraint, people buy these securities as an inflation hedge rather than investing in the real economy. Still…
There is more here.
Question: When the measured expected real return is below zero, how well can any recovery program work?