New 10-year TIPS auctions with a real yield of -0.987%, lowest in history for this term

By David Enna, Tipswatch.com

The U.S. Treasury just announced that its auction of $15 billion of a new 10-year Treasury Inflation-Protected Security — CUSIP 91282CBF7 — generated a real yield to maturity of -0.987%, the lowest ever for any auction of this term.

But here’s the interesting thing: At 11 a.m. EST, a similar 10-year TIPS was trading on the secondary market with a real yield of -1.06%, and even 15 minutes after today’s auction close it was still trading with a real yield of -1.07%. Today’s auction result came in about 8 basis points higher than market values, an indication of weak demand, or over supply, or both.

A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So, the “real yield to maturity” of a TIPS indicates how much an investor will earn above (or below) inflation.

Today’s auction set the coupon rate for CUSIP 91282CBF7 at 0.125%, the lowest the Treasury will go for any TIPS. The -0.987% real yield meant that investors had to pay a sizable premium to collect the coupon rate of 0.125%, about $111.64 for about $100.005 of value, when accrued interest is added in.

The settlement date for this auction is Jan. 29, and it will carry an inflation index of 0.99972, meaning its accrued value will be slightly lower than the purchased amount. February’s inflation adjustment will be a meager 0.09%. It’s easy to see why investors might have been lukewarm about this issue.

On the other hand, the bid-to-cover ratio for this auction was 2.68%, which indicates decent demand.

Here is the trend for 10-year real yields over the last two years, showing the steep decline after an initial burst higher during the pandemic panic of March 2020:

Inflation breakeven rate

At the auction close, a nominal 10-year Treasury note was trading with a real yield of 1.10%, meaning this new TIPS gets an inflation breakeven rate of 2.09%, the highest for any auction of this term since September 2018. Inflation expectations are rising, with recent TIPS auctions providing the solid evidence.

  • Jan. 21, 2020: 2.09%
  • Nov. 19, 2020: 1.72%
  • Sept. 17, 2020: 1.65%
  • July 23, 2020: 1.52%
  • May 21, 2020: 1.14%
  • March 19, 2020: 0.43%

It’s not historically unusual to see 10-year inflation breakeven rates rise above 2%, but inflation has been quite muted over the last decade, averaging just 1.7%. The market is pricing in higher future inflation.

Here is the trend in the 10-year inflation breakeven rate over the last two years, showing the dramatic increases since the March 2020:

Thoughts

The TIP ETF had been trading slightly higher all morning today, so that would seem to indicate that real yields were declining and the auction result would end up somewhere around -1.02% to -1.03%. But instead, the real yield rose a few basis points, meaning investors wanted a better deal than the current market.

After the auction close, the TIP ETF barely budged, and remains positive for the day. The current price is $127.74, very close to the all-time high of $127.92. (All-time highs make me nervous.)

* * *

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Investing in TIPS | Leave a comment

Up next: New 10-year TIPS will auction Jan. 21

By David Enna, Tipswatch.com

The U.S. Treasury will offer $15 billion at auction Jan. 21 in a new 10-year Treasury Inflation-Protected Security, CUSIP 91282CBF7.

The coupon rate and real yield to maturity of this TIPS will be determined by the auction. But we can say three things with certainty: 1) the coupon rate will be 0.125%, 2) the real yield to maturity will be deeply negative, and 3) investors will be paying a sizable premium above par value. And despite all that, I’d expect demand for this TIPS to be fairly high.

The Treasury, responding to the massive federal deficit of 2020 and expected deficit of 2021, has been stepping up the size of its 10-year TIPS auctions, by about 7.5% a year.

  • In January 2019, the auction of a new 10-year TIPS totaled $13 billion
  • In January 2020, same auction, $14 billion.
  • In January 2021, same auction, $15 billion.

Increased supply should begin to put pressure on TIPS yields, nudging them slightly higher. But we haven’t seen supply being much of a factor in real yields to this point, especially with the Federal Reserve ready to step in with purchases.

The U.S. Treasury currently estimates that a 10-year TIPS would have a real yield (meaning the yield above U.S. inflation) of -0.99%, which is 9 basis points higher than the level where real yields began the year. But if that yield holds through Thursday’s action, it would set a record for the lowest yield ever for any auction of a 9- to 10-year TIPS. The record low is -0.966%, set in a reopening auction on Sept. 20, 2020.

A real yield that low will mean investors will be paying more than a 11% premium over par value for that coupon rate of 0.125%.

Here is the trend in 10-year real yields over the last 5 years, showing the dramatic turbulence in yields as the COVID-19 pandemic took hold in March 2020, which then triggered the Federal Reserve’s aggressive program of bond buying to stabilize markets:

Inflation breakeven rate

With a nominal 10-year Treasury note currently yielding 1.11%, a 10-year TIPS with a real yield of -0.99% would get an inflation breakeven rate of 2.1%, much higher than recent auction trends. We haven’t seen a 9- to 10-year TIPS auction generate an inflation breakeven rate higher than 2.0% since September 2018.

Keep in mind that U.S. inflation is currently running at 1.4% and has averaged 1.7% over the last 10 years. Investors are pricing in higher future inflation, which makes TIPS “more expensive” versus their nominal Treasury counterparts.

Here is the trend in the 10-year inflation breakeven rate over the last 5 years, showing the dramatic rise higher after March 2020 in reaction to massive federal stimulus (and a resulting weaker U.S. dollar):

Quick reaction

I’ll be looking for a 10-year TIPS auction for purchase in 2021, but I’m not attracted to this one. A record low yield looks likely, and the inflation breakeven rate is making nominal rates look more attractive.

If you are planning an investment, keep an eye on the Treasury’s Real Yields page to track the current estimate. It is generally a reliable indicator, but strange things sometimes happen on auction days, especially in these volatile political times.

The auction closes to non-competitive bids at noon Thursday, and then finalizes at 1 p.m. EST. I’ll be posting the auction result soon after the close. Here’s a history of all 9- to 10-year TIPS auctions since 2016:

Posted in Investing in TIPS | 3 Comments

U.S. inflation rose 0.4% in December with rise in gas prices

By David Enna, Tipswatch.com

The Consumer Price Index for All Urban Consumers increased 0.4% in December on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 1.4%. Core inflation, which strips out food and energy, rose 0.1% in December and 1.6% for the year.

All of these number were close to the consensus predictions, with the year-over-year number missing on the high side for all-items inflation and on the low side for core inflation. In other words, no real surprises.

This report closes out the year of 2020, which ended up with annual inflation of 1.4%, the lowest rate since 0.7% in 2015.

Overall U.S. inflation surged in December primarily because of a whopping 8.4% increase in the gasoline index, which the BLS said accounted for more than half the overall inflation increase. However, gas prices were still down 15.2% for the year, indicating they have room to rise higher. Other key trends:

  • Food prices were up 0.4% for the month and up 3.9% for the year.
  • Shelter prices rose 0.1% and were up 1.6% for the year.
  • Apparel prices rose a sharp 1.4%, but were down 3.9% for the year.
  • The cost of medical care services dropped 0.1%, but was up 2.8% for the year.
  • The cost of used cars and trucks fell 1.2% for the month, but were 10% higher for the year.

Here is the 12-month trend for both all-items and core inflation in 2020, showing the sharp decline during the pandemic’s first surge in March, and then the gradual rise higher and stabilization in the second half of the year.:

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bonds are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds. For December, the BLS set the inflation index at 260.474, 0.09% higher than the index for November.

For TIPS. The December inflation report means that principal balances for all TIPS will rise 0.09% in February, after falling 0.06% in January. That’s only a net increase of 0.03% over two months. Keep in mind, however, that non-seasonally adjusted inflation has been running lower than seasonally adjusted. This trend will reverse in future months because both versions balance out over 12 months.

Here are the new February Inflation Indexes for all TIPS.

For I Bonds. The December report is the third in a six-month series that will determine the I Bond’s new inflation-adjusted variable rate, which will be reset on May 1. So far, halfway through the rate-setting period, inflation is 0.07% higher, which would result in a woefully small variable rate of 0.14% for I Bonds, versus the current 1.68%. But … three months remain, and a lot can happen in three months.

Here is the trend so far for the current period, along with data for recent rate resets:

Where are we heading?

Inflation was “lower than expected” in 2020, running at just 1.4%. While that is welcome news, investors in TIPS and I Bonds don’t do well when inflation runs lower than expected. But … inflation expectations are rising, with the 10-year inflation breakeven rate currently running at 2.08%, higher than recent trends.

One important factor in rising inflation — definitely reflected in rising gasoline prices — is the decline in the value of the U.S. dollar, down about 10% against international currencies since mid-2020:

Inflation fears are also rising because of recent political events, with the Democratic Party taking control of the White House and both houses of Congress. The theory is that this will increase future stimulus spending and federal deficits, spurring inflation in the U.S. economy.

Will inflation surge in the future? I don’t know. TIPS and I Bonds, however, provide protection against unexpectedly high future inflation. They continue to make sense as a allocation in your overall financial plan.

The Treasury will offer a new 10-year TIPS at auction on Jan. 21, and I will be previewing that auction over the weekend.

Posted in Investing in TIPS | 4 Comments

An I Bond strategy for 2021: Buy them. Whenever. Just do it.

By David Enna, Tipswatch.com

If you’ve been reading my posts over the last decade, you know I generally don’t advise jumping right into an investment in U.S. Series I Savings Bonds at the beginning of the year. Most times, there’s a better strategy: Wait until mid-April or mid-October to make a purchase decision.

Why April and October? Because in the middle of those months, the Bureau of Labor Statistics releases a key inflation report that determines the I Bond’s new inflation-adjusted variable rate, to go into effect on May 1 or November 1. After that report is issued, you will then know the I Bond’s new variable rate, and you will have a better idea if there will be a change in the I Bond’s fixed rate. You have two weeks to decide to buy before May 1 or November 1, or after.

It’s a good, sensible strategy. And … I am going to ignore it this year and buy my full allocation of I Bonds in January. In my case, I have a 10-year TIPS maturing on January 15 and I can reinvest those proceeds in I Bonds. Since I will have the cash available, I’ll just go ahead and make the purchase.

The key reason to set a purchasing strategy for I Bonds is to maximize your chance of getting a higher fixed rate, which is always desirable. By waiting, you can scout out the financial markets and take a guess if the fixed rate is going to rise. If it looks likely to rise, wait to invest. If it looks likely to fall, invest before the reset. If it looks likely to stay the same, compare the before-and-after variable rates and decide which one you want for your first six months.

If you are interested in using this wait-and-see strategy, these are the key dates:

  • At 8:30 a.m. ET on April 14, 2021, the BLS will release the March inflation report, which will then lock in place the new variable rate for I Bond purchases from May to October 2021. Both the variable rate and fixed rate will be reset on May 1.
  • At 8:30 a.m. ET on Oct. 13, 2021, the BLS will release the September inflation report, which will lock in place the new variable rate for purchases from November 2021 to April 2022.

Here are how those inflation numbers have added up to create the I Bond’s variable rate in the last three rate resets, based on non-seasonally adjusted U.S. inflation:

What about the I Bond’s fixed rate?

The I Bond’s fixed rate is currently 0.0% and my thinking is that this fixed rate is highly likely to remain at 0.0% throughout 2021. The Treasury isn’t going to raise the fixed rate above 0.0% when real yields of 5-year and 10-year Treasury Inflation-Protected Securities are well below zero. At this point, these are market-determined real yields:

  • 5-year TIPS = –1.63%. I Bonds have a 163-basis-point yield advantage.
  • 10-year TIPS = -1.07%. I Bonds have a 107-basis-point yield advantage.
  • 30-year TIPS = -0.36%. I Bonds have a 36-basis-point yield advantage.

Because the I Bond’s fixed rate seems likely to remain at 0.0% my recommendation is this: Buy whenever, but I definitely endorse an investment in I Bonds this year, up to the purchase limit of $10,000 per person per year.

What is an I Bond and why is it appealing?

A U.S. Series I Savings Bond is an investment that offers a composite interest rate that combines two elements: 1) an inflation-adjusted variable rate that is reset in May and November based on official U.S. inflation, and 2) a fixed rate that stays with the I Bond until maturity. The fixed rate for I Bonds purchased today is 0.0%, and that means I Bonds in effect have a real, after-inflation return of 0.0%.

OK, a real return of 0.0% sounds awful, but it is actually excellent in today’s environment of negative real yields, across all maturities of U.S. Treasurys and insured bank accounts.

An I Bond with a fixed rate of 0.0% will accurately match U.S. inflation until it is redeemed, earning interest that is tax-deferred and offering excellent protection against deflation. In times of deflation, an I Bond never loses any value. This is not true for a TIPS, which sees its principal balance fall after deflationary months.

Because of its above-market returns and insurance against unexpectedly higher future inflation, I believe the I Bond is the most attractive very safe investment available to small scale-investors today.

An I Bond can be redeemed in one year with a penalty of three months interest, and after five years with no penalty, or just held for 30 years, tax-deferred, before redemption. These terms make the I Bond comparable to a 5-year TIPS, 5-year nominal Treasury and 5-year bank CD. So let’s take a look at the returns of these investments under varied inflation scenarios:

If inflation averages 1.5% or higher over the next five years, the I Bond easily out-performs similar safe investments, which would all have negative real returns. Because of the added benefit of inflation protection and the above-market real return, an I Bond is a strong investment in 2021.

So … consider an investment, up to the purchase cap, anytime it works for you in 2021.

Who should be interested?

I Bonds are an investment for capital preservation, for protecting a portion of your portfolio from unexpected future inflation. I Bonds won’t make you rich. They make sense as an asset allocation as part of a overall financial plan.

I Bonds can also make sense as a short-term investment, as I explained in a recent article: “Unique Opportunity: I Bonds As An 11-Month Investment.” But, because of the annual purchase limit, I suggest buying an allocation every year and holding them until you need to cash.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Investing in TIPS | 9 Comments

5-year TIPS reopening gets real yield of -1.575%, lowest in history for this term

By David Enna, Tipswatch.com

The U.S. Treasury’s offering of $15 billion in a reopened 5-year Treasury Inflation-Protected Security was met with apparant strong demand today, producing a real yield to maturity of -1.58%, the lowest in history for TIPS auctions of this term.

This was CUSIP 91282CAQ4, in a 4-year, 10-month version. It was born in an originating auction on Oct. 22, when it generated a real yield to maturity of -1.32%. The coupon rate was set at 0.125%, the lowest the Treasury will go for any TIPS.

The auction yield of -1.575% set a record for the lowest in the history of 4- to 5-year TIPS auctions, dipping below the previous record of -1.496% set in an auction in December 2012.

A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So, the “real yield to maturity” of a TIPS indicates how much an investor will earn above (or below) inflation. The price of a TIPS is adjusted to reflect how much the real yield is above or below the coupon rate.

So in Tuesday’s auction, investors had to pay a sizable premium above par value because the auctioned real yield of -1.575% was well below the coupon rate of 0.125%. The adjusted price was $108.87 for about $100.37 of value, after accrued inflation and interest is added in.

Negative real yields on TIPS haven’t been unusual since 2011, when the Federal Reserve began its aggressive quantitative easing programs. Another phase of QE started in March 2020, as the global pandemic set off chaos in the bond market. TIPS yields are likely to remain negative to inflation through 2021, and possibly beyond. Here’s a look at 5-year real yields going back to January 2003:

Inflation breakeven rate

With a 5-year Treasury note trading today with a nominal yield of 0.37%, this TIPS gets an inflation breakeven rate of 1.94%, the highest for any auction of this term since August 2018. It means this TIPS will outperform a nominal Treasury of the same term if inflation averages more than 1.94% over the next 4 years, 10 months. It also indicates that TIPS are getting more expensive versus nominal Treasurys.

In “normal” times, a TIPS would be likely to carry an inflation breakeven rate of 2%, or even a bit higher. But over the last decade, inflation has been averaging solidly lower than 2% — it is currently running at 1.2% has averaged 1.7% over the last 10 years.

Here is the trend in the 5-year inflation breakeven rate back to 2003, showing that the current rate is now at a level that is historically typical, despite a decade of lower-than-expected inflation.

Reaction to the auction

It appears that this auction was met with solid demand. The real yield dipped a couple basis points lower than where this TIPS started the day on the secondary market. The auction had a bid-to-cover ratio of 2.86, indicating solid demand.

This auction closes the book on the unattractive history of CUSIP 91282CAQ4:

The Treasury will offer a new 10-year TIPS at auction on Jan. 21, 2021.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Investing in TIPS | 5 Comments

Heads up: Next week’s 5-year TIPS reopening auction is Tuesday, not Thursday

By David Enna, Tipswatch.com

TIPS auctions are almost always on a Thursday, but that won’t happen next week, because Thursday is Christmas Eve, which this year only is a federal holiday thanks to an executive order by President Trump.

So the U.S. Treasury will instead stage its reopening auction for $15 billion of CUSIP 91282CAQ4 on Tuesday, Dec. 22, creating a 4-year, 10-month TIPS. This TIPS was born in an originating auction on Oct. 22, when it generated a real yield to maturity of -1.32%. The coupon rate was set at 0.125%, the lowest the Treasury will go for any TIPS.

A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So, the “real yield to maturity” of a TIPS indicates how much an investor will earn above (or below) inflation. The price of a TIPS is adjusted to reflect how much the real yield is above or below the coupon rate.

In the originating auction on Oct. 22, investors had to pay a large premium to collect the coupon rate of 0.125%. The adjusted price was about $107.59 for about $100.20 of value, after accrued inflation and interest are added in.

Next week’s auction is likely to carry an even higher premium price. This TIPS trades on the secondary market, so you can track its real yield and price on Bloomberg’s Current Yields page, which updates in real time when the market is open. As of about 10:20 a.m. today, this TIPS had a real yield to maturity of -1.58% and a price of about $108.58 for $100 of par value.

If that price holds through Tuesday’s auction, it will be the lowest real yield ever recorded in a 4- to 5-year TIPS auction. The current record is -1.496% from a reopening auction on Dec. 20, 2012. Just a year ago, on Dec. 19, 2019, a TIPS reopening of the same term got a real yield of 0.02%, a remarkable 160 basis points higher than the current yield for the same term of TIPS.

(In addition, this TIPS will carry an inflation index of 1.00352 on the settlement date of Dec. 31, so investors will pay a slightly higher price and receive a matching amount of additional principal.)

Here is the trend in 5-year real yields over the last five years, showing the deep drop in yield after the Federal Reserve began lowering interest rates and buying Treasury securities amid the pandemic panic of mid-March 2020:

Inflation breakeven rate

With a 5-year nominal Treasury note now trading with a real yield of 0.35%, this TIPS currently has an inflation breakeven rate of 1.94%, a bit higher than recent trends. This indicates that investors are now anticipating higher future inflation. (U.S. inflation is currently running at 1.2% and has averaged 1.7% over the last five years.) Inflation will have to average higher than 1.58% for investors to get any nominal return at all from this TIPS.

A higher inflation breakeven rate indicates that a TIPS is getting more expensive versus a nominal Treasury of the same term. The best you could say is that this TIPS is now “fairly priced”; it certainly isn’t cheap.

Here is the trend in the 5-year inflation breakeven rate over the last five years, showing the steep climb higher after the Federal Reserve stepped into Treasury markets in mid-March:

The obvious alternatives

This 5-year TIPS is looking highly unattractive, possibly setting a record low yield and carrying a very high premium price (likely around 8% above par) for a 0.125% coupon rate, plus inflation adjustments. One good thing, though, is that the term is only 4 years, 10 months, the shortest term currently offered in TIPS auctions.

Better alternatives:

Series I Savings Bond. I Bonds currently offer a real yield of 0.0%; in other words they will exactly match future inflation with no risk of loss during deflationary periods. This means the the I Bond has a 158-basis-point advantage over this offering of a TIPS reopening. I Bonds have zero duration risk, and can be redeemed after 1 year with a small penalty and after 5 years with no penalty. But … purchases are limited to $10,000 per person per calendar year. It takes multi-year effort to build up an asset allocation in I Bonds.

Even if you have already purchased up to the limit in 2020, in January you get a new purchase cap and can again invest in I Bonds up to the cap. I Bonds are the best inflation-protected investment right now.

5-year bank CD. Best-in-nation 5-year bank CDs are currently offering insured nominal yields around 0.90%, which boost the inflation breakeven rate of this TIPS to a daunting 2.48%. Think inflation will average higher than 2.5% over the next five years? But the TIPS. Think it will be lower? Buy the 5-year bank CD.

I think most people, though, would opt for a shorter-term CD. Best-in-nation one-year bank CDs currently have nominal yields around 0.6%. That’s lousy, but safe and will beat your money market’s return of around 0.05%.

Auction details

Tuesday’s auction will operate on the normal schedule, with noncompetitive bids due by noon EST and the auction will close at 1 p.m. I hope to post the results soon after the auction’s close.

Here is a history of all 4- to 5-year TIPS auctions back to 2012:

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Investing in TIPS | 3 Comments

U.S. inflation rose 0.2% in November, slightly higher than expected

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2% in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 1.2%.

Both the 0.2% increase in monthly inflation and the 1.2% increase in year-over-year inflation were higher than the consensus estimates. Core inflation, however, which strips out food and energy, matched the consensus estimate of 0.2% for the month and 1.6% year over year.

The BLS said the month’s inflation was broad based, with no one sector dominating the results. Food prices dropped 0.1% for the month, but remain up 3.7% over the last year. Gasoline prices, often a key factor in monthly inflation, dropped 0.4% for the month. Gas prices are down 19.3% over the last year.

Apparel prices were up a sharp 0.9%, and costs of transportation services were up an even higher 1.8%. The index for airline fares rose 3.5% in November after increasing 6.3% in October. Airlines took advantage of a bump in holiday travel, but this trend could begin reversing as pandemic lockdowns begin taking effect across the nation.

Here’s a look at the one-year trend in rates for all-items and core inflation, showing the gradual rise higher and then stabilization after the economic turmoil of February and March:

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bond are also interested in non-seasonally adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds. The BLS set the November inflation index at 260.229, a decline of 0.06% from the October number.

For TIPS. The new November inflation index means that principal balances for all TIPS will be adjusted 0.06% lower in January 2021 after rising 0.04% in December. In essence, TIPS are losing a very small amount of principal over the two months. Here are the new January Inflation Indexes for all TIPS.

For I Bonds. The November inflation number is the second of a six-month string that will determine the I Bond’s new inflation-adjusted variable rate, which will be reset on May 1, 2021. After two months, inflation has been running at -0.02%, which would translate to a variable rate of -0.04%. A lot can happen in the next six months, so this shouldn’t concern I Bond investors. Not yet, at least.

We saw a similar pattern in 2019, when non-seasonally adjusted inflation fell 0.05% in November and 0.09% in December, but then rebounded higher in the next three months. That pattern was even more dramatic in 2018, when inflation fell 0.33% in November and 0.32% in December, then rebounded higher.

Here are the inflation data so far for this rate-setting period:

You can see this data going back to 2012 on my Tracking Inflation and I Bonds page.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.


Posted in Investing in TIPS | 7 Comments

I’ll be scaling back (a bit) on posts here

I’ve been writing about TIPS and I Bonds for nearly 10 years, and as 2020 comes to a close, I’ve decided to scale back a bit on my writing. I’ll still be posting the inflation “news” each month — and its effect on I Bonds — along with auction previews and results, but I won’t be providing in-depth analysis.

If you’ve been following my writing on SeekingAlpha.com, you know that I have built a sizable audience there, and I have written more than 300 exclusive articles for that site since 2015. Those articles generally take an hour or more of work (sometimes much, much more than an hour) and for that work I was getting about $35 an article. It added up to be enough to pay the bill for one of my two monthly Costco trips.

SeekingAlpha recruited me to write about bonds back in 2015, and over the years I have consistently been the site’s No. 1 or No. 2 writer on bonds, and often in the top 10 on retirement topics. The site has altered its pay structure at least four times over the last five years, and generally I ended up making about the same amount, at least $25 an article but sometimes much more for highly successful articles.

Last month, SeekingAlpha drastically altered its pay structure, rewarding authors only for delivering page views to its “high dollar” premium subscribers. It connects its premium payments only to authors writing about specific stock tickers (such as, TSLA) . I rarely write about a specific stock or even ETFs. My articles are focused on near-zero-risk investments in Savings Bonds, U.S. Treasurys and bank CDs. It’s hard to find any other coverage of these topics, anywhere.

The payment change took effect in November. So, although I drove 30,465 page views to the site last month, my pay is going to be $34.76. The same number of page views a month earlier would have earned at least $215. My regular “breaking news” articles earned only about $3.50 an article. An hour of work for $3.50? I’m done.

Last month I wrote my TIPS auction preview story from Hilton Head Island, S.C., while on a brief holiday. Over the years, I have annoyed my wife by writing breaking-news articles aboard a cruise ship on the Nile, from Hanoi, from Paris, on a ship off the Norweigan coast, from Hong Kong, from Lisbon. I took this work very seriously and it was part of my commitment to you, the readers.

So now I am going to scale back. On this site, I will continue to post “news only” updates on inflation, I Bonds and TIPS auctions and results, but without the commentary. I might be a little “late” at times, but not too late, I hope. Sorry!

And I will try to answer questions posted by readers. Thanks for visiting.

Posted in Investing in TIPS | 42 Comments

10-Year TIPS Reopening Gets A Real Yield Of -0.867%

The Treasury’s offering of $12 billion in a reopened 10-year Treasury Inflation-Protected Security resulted in a real yield to maturity of -0.867%.

This is CUSIP 912828ZZ6 and the auction creates a 9-year, 8 month TIPS, with an already existing coupon rate of 0.125%, the lowest possible for a TIPS. That means buyers at today’s auction had to pay a premium price of about $111.64 for about $101.51 of value, after accrued inflation is added in.

The auction had a bid to cover ratio of 2.71, a sign of reasonably strong demand for this TIPS.

The inflation breakeven rate came in at about 1.72%, higher than recent results for auctions of this term.

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10-Year Real Yields Are Rising, But Still Not Attractive

Summary

  • The Treasury will reopen CUSIP 912828ZZ6 on Thursday, creating a 9-year, 8-month TIPS.
  • The current market for this TIPS shows it with a real yield (after inflation) to maturity of -0.85% and a price of about $109.85 for $100 of par value.
  • The inflation breakeven rate is currently about 1.74%, which looks fair.

The U.S. Treasury will reopen CUSIP 912828ZZ6 at auction Thursday, creating a 9-year, 8-month Treasury Inflation-Protected Security. Although market conditions have improved slightly for a TIPS of this term, I don’t think many small-scale investors are going to find it attractive.

Read my full analysis on SeekingAlpha.com

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