Going Negative: 5-Year TIPS Auctions With A Real Yield Of -0.049%

Summary

  • Returns for this new TIPS will slightly lag inflation over the next five years.
  • The negative yield is an omen that the markets see a troubled economy ahead.
  • The inflation breakeven rate came in at 1.82%, a little higher than recent numbers.

Yes, that is a negative number, and it means that returns for investors in CUSIP 912828X39 will slightly lag inflation over the next five years.

Read my full analysis at SeekingAlpha.com

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7 Responses to Going Negative: 5-Year TIPS Auctions With A Real Yield Of -0.049%

  1. Jimbo says:

    This is getting really old, isn’t it?

  2. Joseph Keenan says:

    I bought some of these under 101. Isn’t it possible that there could be unexpected events that could push inflation higher over the next five years despite projects such as international military crises, disruption in energy supplies, etc? Events that are not covered in current inflation projections over the next five years? Thanks. Joe

  3. tipswatch says:

    Joe, definitely. As an investor who focuses on inflation protection for part of my portfolio, I am always looking for buying opportunities. I have a TIPS maturing this year and I’ll need a replacement, and I would like to grow my holdings. I will be buying something this year. Unexpected events are the reason we need inflation protection.

    • Joseph Keenan says:

      Thanks for your reply. I am 67, and mentioned previously that Gov Chrisitie eliminated the cost of living adjustment on my pension, so inflation protection of principal means a lot to me. I think that by the time that unexpected events occur that cause an uptick in inflation, the cost of tips will have already spiked up. So, I bought 50 of the new 5 year tips, I am paying out of pocket $100 a year for the privilege. Yes, it is negative cash flow, but for $100 a year, I am getting inflation protection on $50K. Of course, my wife and I will max out our Ibond allotments this year also. Your advise is always useful and appreciated. Joe

  4. Jimbo says:

    Gotta love the state being able to renege on a contract. I was self-employed for most of my adult life. People thought I was nuts. Just work for IBM. It’s a gravy train. Once a lot of them turned 50, it turned-out to be a train wreck. The plan I had was to slowly move into TIPS once I retired. But, with negative yields this is just plain nuts. I’ve got about 10% in iBonds and 5% in TIPS. Depending on the combined interest rate, I may purchase more iBonds in the fall. But, I won’t touch TIPS until I can buy them at a discount at auction. The last five years were a good time to watch the reality of TIPS investing. Deflation can do a real job on the principle value of them So, I’d never purchase any TIPS above par.

    • Joseph Keenan says:

      Jimbo, yes. We suspect that corporations may go rogue on their pension obligations, but not state governments. But, it did. Well, I am still ahead of the game even without the cola increase. This is due on large part to benign inflation over recent years. For retirees, low inflation is a very good thing, and we have basically had it for many years. I am not so hopeful for the next decade. If there is a push for a lot of infrastructure and military spending, if major tax cuts leads to even more deficit spending, and other unanticipated events, inflation could go higher. Hopefully I am wrong. Thanks for your comment. Joe

  5. tipswatch says:

    Jimbo, I still say don’t worry TOO MUCH about above or below par in an auction purchase. Just focus on the real yield above inflation. If that is attractive, remember, that is what you get. Very simple, beyond the arguments about what is the real rate of inflation.

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