Treasury Inflation-Protected Securities

• The real (after-inflation) yield looks likely to climb above 0.80%, a seven-year high for TIPS of this term.
• The inflation breakeven rate is climbing toward 2.15%, meaning this TIPS is not “cheap” versus a nominal Treasury. But it’s not “expensive,” either.
• Think real yields will continue climbing? You’ll have three more chances in 2018 to buy a TIPS of this term.

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• Headline inflation rose 0.2% in April, below the consensus estimate of 0.3%.
• Core inflation was up 0.1% for the month and has increased 2.1% over the last 12 months. That’s the definition of ‘moderate inflation.’
• Non-seasonally adjusted inflation was up 0.4% in April, meaning holders of TIPS will see principal balances rise 0.4% in June.

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Also, I have updated my Tracking Inflation and I Bonds page with these new numbers.

And here are the new June inflation indexes for all TIPS.

• Current trends are pointing at a real yield above 0.65%, the highest for any 4- to 5-year TIPS auction since October 2009.
• This TIPS will outperform a U.S. Series I Bond over five years and is very competitive with best-in-the-nation bank CDs.
• The inflation breakeven rate should come in slightly higher than 2.0%, putting this TIPS in the “neutral” range versus on nominal Treasury.

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• The I Bond’s six-month variable rate will fall from 2.48% to 2.22% on May 1. The difference in yields is temporary and negligible.
• The fixed rate will also be reset May 1, and odds are that it will hold at 0.1% — or rise to 0.2%, possibly even 0.3%.
• The potential for a higher fixed rate means investors should delay purchases at least until after May 1, maybe even later.

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