(One notable exception to the comparability of prices occurred on June 28. For this date, the New York Times reported a price of 100:06-07, implying a real yield of -1.99%, while for the same date, the WSJ reported 100:28-29, implying a real yield of -19.3%. The two papers respectively reported price changes of only -3/32 and -4/32 for that issue, so the discrepancy could not have been attributable to a sudden late afternoon price shift. For this date, this data base uses the more plausible NYT quote for this security, even though WSJ quotes are used for all other securities.)
Although it is next to impossible for nominal rates to go negative, given the option of holding zero-interest cash, there is no reason real rates cannot occasionally go negative, though it would be an unusual circumstance. Taken at face value, these negative real rates would suggest that the Fed was pursuing an extremely expansionary policy at the time.
However, it should be borne in mind that as indexed bonds approach maturity, the 2.5 month lag in indexation implies that they are being indexed increasingly with noisy past inflation, rather than with relatively smooth expected future inflation. Annualized monthly inflation for March, April, and May of 2002 from the month prior was, respectively, 6.7%, 6.7%, and 0.0%. The return volatility on the maturing 7/02i was largely due to these noisy month-to-month inflation rates. To some extent the negative real returns were also due to these non-representive realized short-term inflation rates.
The U.S.'s 5-year experience with indexed bonds generally demonstrates that real interest rates are much less volatile than nominal. However, second quarter of 2002 has shown that maturing measured real rates can actually be more volatile than nominal, simply because they are indexed to noisy realized past inflation rather than to smooth expected future inflation. This quirk in the performance of maturing TIPS is of no great significance for their attractiveness as long-term investments.
On 2/27/04, the real yield on the shortest term 3.375 of 1/07i was slightly negative (-0.028%), and was reported as such by the Wall St. Journal. The quotation services have evidently corrected their software since 2002 to take this contingency into account.