10-Year TIPS Reopening Gets A Gorgeous Result

Summary

  • This was an investor-friendly auction: The real yield of 0.68% was much higher than looked likely a week ago.
  • The inflation breakeven rate of 0.43% is “out-of-normal” low and seems to be pricing in a dire economic future.
  • Treasury markets are in flux, with asset pricing and yields difficult to predict.

One of the strangest weeks in the history of Treasury Inflation-Protected Securities ended Thursday with a beautiful result for investors: The Treasury’s reopening auction of a 10-year TIPS got a real yield to maturity of 0.680%, much higher than looked likely just days ago.

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This Week’s 10-Year TIPS Reopening Looks … Who Knows?

Summary

  • Market turmoil has created incredible volatility, even for mundane investments like U.S. Treasurys.
  • Friday’s real yield of 0.04% would have been “attractive,” but it isn’t likely to hold in light of the Federal Reserve’s rate-cutting action Sunday.
  • The current 10-year inflation breakeven rate of 0.90% makes this TIPS a much more attractive investment versus a 10-year nominal Treasury. But that could also swing wildly.

In the midst of all this volatility, the Treasury on Thursday will offer $12 billion in a reopening auction of CUSIP 912828Z37, creating a 9-year, 10-month TIPS.

Read my full analysis on SeekingAlpha.com

10-year real yield

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Amid Bond Rally, The TIP ETF Got Crushed. Why?

Summary

  • The TIP ETF has lost more than 6% of its value in a few days, and is falling sharply again this morning.
  • A key reason is that inflation expectations are plummeting, causing the TIP ETF price to fall versus the overall bond market.
  • The market is pricing in a severe recession. But individual TIPS are a much better investment than nominal Treasurys. And TIP funds and ETFs¬† are looking more attractive.

Investors in the TIP ETF – an index fund that holds the full range of Treasury Inflation-Protected Securities – got a big surprise this week: a stunning 6.2% drop in value amid a what appeared major “safe haven” Treasury rally.

Why did that happen?

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TIP versus Treasury Market

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Inflation Rose 0.1% In February; Deflation Is New Risk

Summary

  • The inflation numbers came in close to the consensus, but year-over-year core inflation came in slightly high at 2.4%.
  • Investors are pricing in extremely low inflation over the next 10 years. Is this an overreaction to short-term news? Yes, I think so.
  • I Bond investors can expect a lower variable rate coming at the May 1 reset. My recommendation: Buy I Bonds, up to the purchase cap, before May 1.

U.S. inflation continued in the “moderate zone” in February, but rising turmoil in the stock and commodity markets could bring a short-term swing to deflation in coming months.

The Consumer Price Index for All Urban Consumers rose 0.1% in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, “headline” inflation increased 2.3%.

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I Bond Investors: It’s Time To Buy

Summary

  • Series I Savings Bonds purchased through April 30 will have a permanent “real yield” of 0.2%, well above TIPS yields of any maturity.
  • I Bonds carry many benefits over TIPS, including tax-deferred interest and rock-solid deflation protection.
  • Another Savings Bond, the EE Bond, is also very attractive under current terms, offering a 3.5% return for anyone who can hold it 20 years.

I’ve been writing about TIPS and I Bonds for nearly 10 years, and there have few times when I Bonds have reached the level of a SCREAMING BUY. Right now, in March 2020, it’s time to say: “I Bonds are a screaming buy.”

I’ve been pounding the table for I Bonds in recent months, often calling them the best inflation-protected investment in the world. But we’ve now reached a point where I Bonds are amazingly superior to similar very safe investments.

Read my full analysis on SeekingAlpha.com

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New 30-Year TIPS Gets Record-Low Real Yield Of 0.261%

Summary

  • The real yield of 0.261% was the lowest for any 29- to 30-year TIPS auction in history, and much lower than the previous record of 0.479%.
  • The coupon rate also set a record low of 0.250%, much lower than the previous record of 0.625%.
  • Long-term real yields are in a “weird” zone. Beware.

The U.S. Treasury’s auction of a new 30-year Treasury Inflation-Protected Security went off Thursday with a sensational result: A record low real yield of just 0.261%, well below any 29- to to 30-year TIPS auction in history.

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This New 30-Year TIPS Looks Like A ‘Death Star’ Investment

Summary

  • The term is too long. The risk is too high. The potential reward is too low.
  • An inflation breakeven rate of about 1.72% will make this TIPS appealing for big-money investors, so this auction should get solid demand.
  • But for small-scale investors looking for inflation protection, the Series I Savings Bond is a superior investment.

It’s big and ominous. It’s volatile. It’s actually kind of scary. And it might outlive you. This is CUSIP 912810SM1 — a 30-year Treasury Inflation-Protected Security being created by the U.S. Treasury this week.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment