Consumer Price Index falls 0.1% in October

Investors in Treasury Inflation-Protected Securities and I Bonds have been enjoying decent returns for the last year, thanks to higher-than-expected inflation.

But that trend turned in October, with the Consumer Price Index falling 0.1% because of lower prices on gas, cars and computers. The index for all items less food and energy (the ‘core inflation rate’) rose 0.1% in October, the same increase as in September.

This October number isn’t great news for holders of TIPS, who will see their principal balances fall slightly. But over the last 12 months, CPI has increased 3.5%, still providing a return that make TIPS attractive over nominal Treasuries.

It’s also interesting that the stock market is shaky today because the price of oil is rising above $100 a barrel. If this continues. it’s likely that the recent fall in gas prices would be reversed.

Update on Nov. 17 reissue of 10-year TIPS

The market rate of the Jul 2021 TIPS that will be reissued Thursday has risen into positive territory, and the overall TIPS market has weakened slightly today. That may mean the reissue will carry a positive yield (in addition to inflation adjustment to principal).

No 9- to 10-year TIPS has ever auctioned with a negative yield, and that trend might continue. We will learn the result at 1 p.m. Thursday.

Here’s my post from last week with more information on CUSIP 912828QV5.

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