A yield of minus 0.55 per cent has been put on $10 billion worth of Treasury Inflation Protected Securities (Tips), which will compensate bond-holders if the consumer price index rises.
Around 39 per cent of the Tips have already been purchased by long-term institutional investors, up on the 30 per cent average recorded across the previous six Tips sales, reports the Financial Times.
Expectations for inflation, worked out by comparing Tips yields with Treasury ones, in the US economy have improved this month, up to as high as 1.75 per cent from 1.13 per cent in August.
Richard Gilhooly, strategist at TD Securities, said: "If inflation protection is in such strong demand that investors will buy aggressively at negative real yields, then surely at some point investors have to question the wisdom of buying nominal Treasuries with such low yields."
Jan Loeys, head of global asset allocation at JPMorgan Chase, said the Federal Reserve is currently sending out a message that it is prepared to do what is necessary to reflate the American economy.
He added that while it is unclear when inflation will start to take effect in the US, more cautious investors are hedging against it and becoming warier of bond purchases.
"Shorter-term thinkers are still willing to still buy bonds, on the presumption that they are nimble enough to get out when inflation comes to push yields up," Mr Loeys stated.
Earlier this month, the Federal Reserve said additional economic stimulus measures may soon be required in the US.
It said it was prepared to carry out such a move if necessary, suggesting the purchase of more government debt as one potential option, reported BBC News.
By Gary Cooper