10-Year TIPS Reopening Gets Real Yield Of -0.47%, Lowest Since 2013

Summary

  • In its five-month auction history, CUSIP 912828Z37 showed remarkable volatility, with a swing of 115 basis points from March to May.
  • Today’s real yield of -0.47% was the lowest at auction for any 9- to 10-year TIPS since March 2013.
  • Negative real yields are the new normal and will continue as long as the Federal Reserve continues interventions into the bond market.

For the first time in 42 consecutive auctions of this term stretching over seven years, the real yield on a 10-year TIPS went negative Thursday, dropping to -0.47% in a $12 billion Treasury offering.

Read my full analysis on SeekingAlpha.com

CUSIP 912828Z37

Posted in Investing in TIPS | Leave a comment

After A Surreal Surge, This 10-Year TIPS Is Now Depressingly Normal

Summary

  • The Treasury will reopen a 10-year TIPS at auction on Thursday, with the real yield to maturity expected to be well below zero.
  • This TIPS — CUSIP 912828Z37 — had an amazing reopening auction in March, just as Treasury yields were surging.
  • It’s not an attractive investment for small-scale investors, but the inflation breakeven rate of about 1.18% will make it appealing to big-money investors.

The U.S. Treasury will offer $12 billion in a reopened 10-year Treasury Inflation-Protected Security — CUSIP 912828Z37 — at auction Thursday, in an event that will reveal just how depressing the TIPS market has become.

Read my full analysis on SeekingAlpha.com

Tips auction history

Posted in Investing in TIPS | Leave a comment

Here’s Why You Should Shun Treasury’s New 20-Year Bond

Summary

  • The 20-year bond will re-launch Wednesday for the first time since 1986 at a regularly scheduled auction. The nominal yield should be about 1.05%.
  • The Treasury will raise $20 billion in this auction, part of a massive borrowing effort this year, to fund COVID19 relief programs.
  • The nominal yield of 1.05% is highly unattractive for small-scale investors. Series EE Savings Bonds offer equal safety at the same term with a massive yield advantage.

The U.S. Treasury will re-launch its 20-year bond in a historic auction Wednesday, offering $20 billion of this new issue, CUSIP 912810SR0. The 20-year bond has not been sold to the public regularly since 1986.

My reaction? This is a great idea for the Treasury. It’s also a lousy investment for small-scale investors. And there is a much, much better alternative available, also with a 20-year term, and just as safe.

Read my analysis on SeekingAlpha.com

20-year nominal yields

Posted in Investing in TIPS | 2 Comments

U.S. Inflation Fell 0.8% In April, Largest Drop Since 2008

Summary

  • Gasoline prices fell a remarkable 20.6% in April, setting off a deflationary surge across the economy.
  • Core inflation fell to 1.4% year over year, breaking a 27-month streak of rates at or above 2.0%.
  • Inflation-protected investments, especially TIPS, will suffer in this deflationary period.

In a stunning reflection of the current U.S. economy, the Bureau of Labor Statistics reported today that U.S. inflation fell 0.8% in April, the largest drop since December 2008, at the opening of the Great Recession. Year-over-year U.S. inflation has now plummeted to just 0.3%, down from 2.5% at the beginning of the year.

Read my full analysis on SeekingAlpha.com

12 month inflation trend

Posted in Investing in TIPS | Leave a comment

Treasury Cuts I Bond Fixed Rate To 0.0%; Holds Steady On EE Terms

Summary

  • U.S. Series I Savings Bonds purchased from May to October will pay a composite rate of 1.06%, annualized, for six months.
  • EE Bonds will continue to double in value if held for 20 years, creating a tax-deferred, compounded rate of return of 3.5%.
  • Both of these savings bond investments remain superior to better known alternatives offered by the U.S. Treasury.

The U.S. Treasury just announced it is cutting the fixed rate of U.S. Series I Savings Bonds to 0.0% as of May 1, a move that was widely expected and won’t dampen the appeal of these inflation-protected savings bonds.

Read my full analysis on SeekingAlpha.com

I Bond Fixed Rates

Posted in Investing in TIPS | 2 Comments

Real Yield On New 5-Year TIPS Dips Deeply Negative, At -0.32%

Summary

  • The new Treasury reality is negative real returns and stunningly low inflation expectations.
  • The auction result of a real yield to maturity of -0.320% matched the Treasury’s overnight estimate.
  • The inflation breakeven rate of 0.69% makes this TIPS – even with a negative real yield – much more desirable than a five-year nominal Treasury. But there are better alternatives.

Today’s Treasury auction of $17 billion in a new five-year Treasury Inflation-Protected Security – CUSIP 912828ZJ2 – reflected a new reality of ultra-low yields and grim inflation expectations.

Investors got a real yield to maturity of -0.320%, the lowest for any TIPS auction of this term in five years.

Read my full analysis on SeekingAlpha.com

5-year TIPS history

Posted in Investing in TIPS | Leave a comment

As 5-Year TIPS Auction Approaches, Real Yields Are On The Move

Summary

  • A new 5-year Treasury Inflation-Protected Security — CUSIP 912828ZJ2 — will be created at auction Thursday.
  • This TIPS looks likely to get a real yield to maturity in the range of -0.20% to -0.30%, but a firm prediction is impossible.
  • Reaction? It’s not an ugly investment idea, but I Bonds are clearly the better investment for your first $10,000.

This new 5-year TIPS should attract some investor interest, despite deflationary fears in the short term. A massive explosion of Federal Reserve stimulus and U.S. government deficit spending is being used to stabilize the financial system, and at least so far, it is working. The S&P 500 index is up about 22% since hitting a low of about 2,235 on March 23.

Read my full analysis on SeekingAlpha.com

5-year auction history

Posted in Investing in TIPS | Leave a comment