10-Year TIPS Reopening Auctions With A Real Yield Of 0.052%

Summary

  • Buyers will pay about $101.11 for $100.40 of value, after accrued inflation is figured in.
  • The Fed’s decision to hold off on an interest rate increase drove TIPS yields lower.
  • The inflation-breakeven rate of 1.56% makes this an attractive issue for big-money investors.

Read my full analysis at SeekingAlpha.com

Sorry about my delay in posting this. The news cycle is a bit hectic in my home town of Charlotte these days. But I am safe, no problems. Just sad for my city.

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Checking in on Thursday’s 10-year TIPS reopening auction

The Federal Reserve this afternoon backed away from a short-term interest rate hike this month, but left the door open for a future increase, most likely in December. That was exactly what the market was expecting, so there’s shouldn’t be a big effect on tomorrow’s auction.

This is a reopening of CUSIP 912828S50, and the auction will create a 9-year, 10-month TIPS with a coupon rate of 0.125%. Non-competitive bids have to be placed by noon.

Here’s where the market stands Wednesday evening for this TIPS, which trades on the secondary market:

  • Bloomberg’s Current Yields page shows this TIPS trading with an after-inflation yield of 0.12% and a price of about $100.02 of value. Today’s yield to maturity is very close to this TIPS’ coupon rate.
  • The Wall Street Journal’s Closing Prices page shows this TIPS (which matures 2026 Jul 15) closed Wednesday with a real yield of 0.127% and a price of almost exactly $100 for $100 of value.
TIP ETF, Wednesday Sept 21

TIP ETF, Wednesday Sept 21

If you are thinking of investing in this TIPS, I advise waiting until about 10 a.m. Thursday morning, and then checking the trend of the TIP ETF. If the ETF’s price is rising sharply, expect a lower yield; and vice versa.

As the chart shows, the TIP ETF got a nice boost after the Federal Reserve’s interest rate announcement. A higher price means a lower real yield for investors. It’s never a nice thing when a product gets more expensive on the day before you are buying it.

Unless there’s a big market swing Thursday morning, it’s looking like this 9-year, 10-month TIPS will be getting a real yield right around the coupon rate of 0.125%.

I’d argue that the US Savings I Bond – with a fixed rate of 0.10% – is much more desirable than a 10-year TIPS with a real yield of 0.12%. The I Bond has a flexible maturity, tax-deferred interest and better deflation protection. In ‘normal’ times, a 10-year TIPS would have about a 75 basis point premium over an I Bond. Right now that premium has shrunk to about 5 to 10 basis points.

I’ll be posting the auction results after 1 p.m. on SeekingAlpha.com.

Read full versions of all my recent articles on SeekingAlpha

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10-Year TIPS Will Reopen At Auction Thursday; What’s The Likely Result?

Summary

  • CUSIP 912828S50 has a coupon rate of 0.125% and may auction at a slight discount.
  • As of Friday, the likely real yield was in the range of 0.15% to 0.19%.
  • Here’s how to track the likely yield as Thursday’s auction approaches.

Read my full analysis on SeekingAlpha.com

I be posting an update later this week on this site, and then the auction result after 1 p.m. Thursday on SeekingAlpha.com.

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U.S. Inflation Increased 0.2% In August; What Does This Mean For I Bonds And TIPS?

Summary

  • Headline inflation has increased just 1.1% over the last 12 months.
  • Core inflation, however, was up 0.3% in August and 2.3% over the last 12 months.
  • The I Bond variable interest rate looks likely to get a big bump up on November 1.

Read my full analysis at SeekingAlpha.com

I’ve also updated my I Bonds and Inflation page with the new numbers.

And here are the new October inflation indexes for Treasury Inflation-Protected Securities.

 

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Investors should know: TIPS ETFs and mutual funds are riskier than you think

Summary

  • TIPS mutual funds aren’t diversified. Total Bond Market funds make a better ‘core’ fixed-income investment.
  • TIPS prices can be volatile, surprising investors when the prices head down.
  • Alternative? Buy individual TIPS and hold them to maturity, along with I Bonds up to the yearly cap.

A lot of investors believe putting money into an ETF or mutual fund holding Treasury Inflation-Protected Securities is a very safe ‘core’ investment. After all, these are investments in U.S. Treasurys, so there is no credit risk.

But there is interest-rate risk and diversification risk, and price swings for these mutual funds and ETFs and be quite dramatic.

Read my full analysis at SeekingAlpha.com

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5-year TIPS reopens at auction with a real yield of -0.209%, lowest in 16 months

Summary

  • The after-inflation yield of -.209% is the lowest since an auction in April 2015.
  • Buyers had to pay a premium, about $103.27 for $101.69 of value, when accrued inflation is added in.
  • The inflation breakeven rate was 1.32%, making this TIPS attractive versus a nominal Treasury.

This auction didn’t carry much interest for me, because I Bonds and short-term bank CDs look more attractive. But demand appeared to be strong, and the TIP ETF is rallying today, indicating a positive reaction to the auction.

Read my full analysis at SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment

U.S. inflation was unchanged in July; what does it mean for TIPS and I Bonds?

Summary

  • July inflation came in under the consensus estimate of 0.2%.
  • Gasoline prices fell sharply, breaking a four-month string of increases.
  • Non-seasonally adjusted inflation fell 0.16% for the month, which will lower TIPS principal balances in September.

Read my full analysis on SeekingAlpha.com

Also, I’ve updated my Tracking Inflation and I┬áBonds page with the new numbers.

And here are new TIPS inflation indexes for September.

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