Treasury Inflation-Protected Securities

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.

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.

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Summary

• The Part B premium will increase to $148.50 in 2021, up from $144.60 in 2020. Congress held down this cost in a spending bill passed earlier this year.
• The annual Part B deductible is increasing to $203, up from $198 in 2020.
• Many Medicare beneficiaries are unaware that higher income levels can trigger possibly lofty surcharges added to their premiums. It takes planning to keep these costs down.

Any day now, if you are on Medicare, you will get a letter from the Centers for Medicare & Medicaid Services informing you of your new premium and deductible costs for 2021. If you planned well in 2019, your costs should be going up only slightly.

But if you planned poorly, you may be meeting up with IRMAA, the Income-Related Monthly Adjustment Amount, which adds a surcharge to your Medicare Part B and D premiums. These surcharges can be lofty, so it’s smart to plan ahead to limit these costs.

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Summary

• Both all-items and core inflation came in at 0.0% for the month, less than the consensus forecasts.
• The BLS called the report “mixed,” reflecting large variances in price increases or decreases across the economy.
• For holders of TIPS and I Bonds, non-seasonally adjusted inflation was also very close to zero, at 0.04% for the month.

Despite predictions for a moderate increase, U.S. inflation fell flat in October as deflation set in across several sectors of the economy.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in October 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 of those numbers fell below the consensus estimates of 0.2% for the month and 1.3% for the year.

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Summary

• The U.S. Treasury did the right thing today, keeping I Bonds and EE Bonds very attractive investments, for different reasons.
• I Bonds purchased from November 2020 to April 2021 will earn a composite annualized interest rate of 1.68% for six months.
• EE Bonds continue to have a fixed rate of 0.1% but will double in value after 20 years, providing an effective annual return of 3.5%.

Whew, no surprises.

The U.S. Treasury just announced it is holding the fixed rate for U.S. Series I Savings Bonds at 0.0%, ending speculation that it could set a negative fixed rate for the I Bond for the first time in history. It also retained very generous terms that allow the Series EE Savings Bond to double in 20 years, earning an effective interest rate of 3.5%, much higher than market rates.

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Summary

• The result, which dipped below recent market indicators, was the second-lowest real yield for any TIPS auction of this term.
• Investors had to pay a sizable premium for this TIPS, about 7.5% above par value, to collect a coupon rate of 0.125% (plus future inflation accruals).
• The inflation breakeven rate climbed to 1.69%. TIPS real yields have been declining at the same time nominal yields are rising.

The Treasury’s offering of $17 billion in a new five-year Treasury Inflation-Protected Security – CUSIP 91282CAQ4 – auctioned Thursday with a real yield to maturity of -1.32%, lower than expected by about 10 basis points.

That real yield (meaning the yield after inflation is calculated in) is the second lowest in the history of TIPS auctions of this term. The lowest ever was -1.496%, set by a reopening auction on Dec. 20, 2012.

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Summary

• The U.S. Treasury will offer a new 5-year TIPS at auction Thursday.
• The real yield looks likely to come in around -1.21%, which is pretty awful but isn’t a record low.
• The only way to judge this TIPS is to compare it with other very safe investments of similar term. How does it measure up?

The U.S. Treasury on Thursday will offer $17 billion at auction in a new 5-year Treasury Inflation-Protected Security, CUSIP 91282CAQ4. The real yield to maturity and coupon rate will be set by the auction, but we already know, the terms are going to look fairly awful.

But in the current environment of ultra-low interest rates for safe investments, this TIPS should be considered “above average.” Why? Because it provides a hedge against unexpected future inflation.

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Summary

• We now know the I Bond’s next inflation-adjusted variable rate, which is rising to 1.68% from the current 1.06%.
• The permanent fixed rate, currently 0.0%, will be reset on November 1, but is highly likely to remain at 0.0%.
• The I Bond’s current terms allow it to be used as an 11-month investment that will outperform other safe short-term investments.

Everyone knows I am a big fan of U.S. Series I Savings Bonds, an investment offering returns that will track inflation closely with total safety, tax-deferred interest and solid protection against deflation.

Right now, in our interest-rate-suppressed environment of October 2020, I Bonds have become an attractive short-term (meaning 11-month) investment, while retaining the option to hold them much longer, up to 30 years.

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Summary

• Social Security payments will increase 1.3% in January, adding about $20 a month for the average recipient. However, a hike in Medicare premiums could wipe out part of that increase.
• The inflation-adjusted variable rate for U.S. Series I Savings Bonds will be reset to 1.68% for purchases after November 1, up from the current 1.06%.
• U.S. inflation increased 0.2% in September, matching expectations. Gasoline prices held almost steady for the month.

The September inflation report, released Tuesday morning, is by far the most important report of the year, because it sets both the cost-of-living adjustment for Social Security and also the future inflation-adjusted rate on U.S. Series I Savings Bonds.

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