By David Enna, Tipswatch.com
It’s been an interesting month for financial investments of all types, as markets adapt to the launch of a second Donald Trump administration. Interesting, and very profitable for some speculative investors.
Some examples:
- The S&P 500 stock index has surged 6.6% since Election Day on Nov. 5.
- NASDAQ stocks are up 9.2% overall.
- Bitcoin is up 49.5%.
- Tesla shares are up 60.2%.
- Software firm MicroStrategy, which has speculated on Bitcoin, is up 77.1%.
- The stock of private prison firm CoreCivic is up 62.1%.
- Palantir Technologies, a data analytics firm with expertise in counter-terrorism, is up 84.3%.
Some of these one-month increases are bordering on ridiculous. Speculators have been doing very well. That worries me as we enter a period of much easier regulation of giant financial firms. But even the low-volatility bond market has been doing okay, as interest rates have slipped from late-year highs. Vanguard’s Total Bond Market ETF is up 1.2% since Election Day, and the TIP ETF is up 0.82%.
Investors in Treasury Inflation-Protected Securities have seen the real yield curve both widen and then decline in the closing weeks of this year, with long-term TIPS getting higher yields than the shorter-term issues. Here is the year-to-date trend:
I highlighted the middle section of this chart, spring 2024, to show an optimal time for building a long-term ladder of TIPS investments. It is unusual to see high yields packed in a tight pattern. Investors could purchase individual TIPS of just about any maturity, 5 to 30 years, and get a real yield higher than 2.0%, a historically desirable number. See my post from June 9 and a more recent update on Nov. 10.
Here is a recap of real yields through the year, showing the high and low yields based on the 10-year term.
What we are seeing today is a “normalized” yield curve, and still attractive.
I’d expect the 5-year real yield to decline (a bit) as the Federal Reserve continues to cut short-term interest rates. The Fed will announce a decision Dec. 18, a week after we get the November inflation report (Dec. 11) and one day before a 5-year TIPS reopening auction (Dec. 19).
It seems highly likely the Fed will cut its federal funds rate by 25 basis points to a range of 4.25% to 4.50%. Last week’s 4- and 8-week T-bill auctions seemed to signal the market’s belief a cut is coming. The 4-week came in at 4.476%, down from the week earlier’s 4.630%. The 8-week was also down at 4.440%.
So for the time being, we could see slightly lower real yields in the 5- to 10-year range, but somewhat more stable real yields in the 20- to 30-year range. The upcoming inflation report could also swing the market. Barron’s is forecasting an CPI-U increase of 0.3% for October, which would indicate inflation is not steadily sliding lower.
I don’t see mid- to longer-term real yields declining dramatically in the near term. Do TIPS remain attractive investments? I think so in a time of economic uncertainty.
What comes next
Wednesday, Dec. 11. I will be posting an analysis of the November inflation report and its effect on TIPS and I Bonds. Even if seasonally-adjusted inflation comes in at 0.3%, you can expect the non-seasonally number — which affects TIPS and I Bonds — to be lower. In November 2023, official CPI-U rose 0.1% while non-seasonal was down 0.2%.
If November inflation ends up in the expected range, stock market investors will probably yawn and continue the Santa Claus/Trump rally.
Sunday, Dec. 15. I will post a preview article on the upcoming reopening auction of a 5-year TIPS, CUSIP 91282CLV1. Prediction: The real yield could end up being quite close to the originating auction‘s 1.670%, or a bit lower.
Wednesday, Dec. 18. The Federal Reserve will announce its decision on short-term interest rates. I won’t be writing about that, unless something wild happens.
Thursday, Dec. 19. I’ll post the results and an analysis of the 5-year TIPS reopening auction.
Thursday, Jan. 2. I am hoping for some guidance from the Treasury on the status of gift-box purchases of I Bonds. I delivered two sets in 2024. At the least I hope to see — possibly — if I am locked out of purchases in 2025.
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• TIPS investor: Don’t over-think the threat of deflation
• Upcoming schedule of TIPS auctions
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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).
Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.
David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
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Bond vigilantes might come out next year depending on how Trump’s agenda takes shape, and high yields could make a come back…
I am thinking of selling all zero fixed rate I Bond to buy 5 and/or 10 years TIPS. Please tell me your opinion.
Thanks,
I have sold all my 0.0% fixed-rate I Bonds and rolled them over to the 1.3% version. So it seems like a reasonable plan. If you buy on the secondary market or at a brokerage, be prepared for fluctuations in TIPS market value, which never happens with I Bonds. If you are holding to maturity, ignore that.
Thanks for your quick opinion David. I do appreciate it.
I’m planning to buy at the 5 year tips auction. Can you see a reason to buy on secondary market sooner? Thanks!
I’d say set a target real yield and if you see it on the secondary market, go ahead and buy it. The one interesting thing about the auction is that demand could be weak and the yield could get a little pop, but only a couple basis points, probably.
I just plugged in the 5 year cusip 912810fh6 on 2ndary market at Fidelity. 1.79 effective yield and inflation factor 1.9. Why does the purchase of only 3 bonds cost $6287.44? Thanks.
While CUSIP 912810fh6 will mature in April 2029, it is not really a 5-year TIPS. It was issued April 15, 1999, and it currently has an inflation index of 1.91854, meaning you will be buying 92% additional principal on the secondary market. Plus, it has a coupon rate of 3.875%, meaning you will be paying a premium price for all that extra principal, about 108.50 for 100 of value. So you’d be buying nearly double par value, at a premium price.
A better choice (maybe) would be CUSIP 91282CLV1, which matures Oct 2029, has a coupon rate of 1.625%, has an inflation index of only 1.00272 and is selling at a discounted price of about 99.70. That is the TIPS that will be reopened at auction on Dec. 19.
Your reply is very interesting and appreciated. I came up with the cusip 912810fh6 from Tipsladder.com. In fact, I was planning to finally fill in gaps in my 10 year ladder today or tomorrow based on Tipsladder.com. Your feedback helps me realize I don’t know what I’m doing. Apparently, I can’t trust tipsladder.com to give me good suggestions. Maybe I just fill in my Tips ladder at auction. But since yields are declining, I thought I’d lock in current rates now. Do you have a suggestion, like get help from a Fidelity bond desk person, or ? to double check the cusip is best I can get for a particular year now. Thanks.
You happened to hit on one of the most unusual TIPS in the entire maturity range. (I own that one, and I did purchase it in 1999.) It is daunting to buy a TIPS with a very large inflation accrual + a premium price, which happens right now with 912810fh6. If you want to avoid that, you can set a parameter in Tipsladder.com:
Which TIPS to choose when several mature the same year: Lowest inflation-adjusted principal
For years after 2034, there will be only one TIPS available for purchase and so there is only one option, and it will probably have a high level of inflation accrual. But for 2029, you have other options.
Here is my very simple approach to this issue – if the actual secondary market purchase price of TIPS with accrued inflation is higher than 100 – I do not want it.
If the goal is to find a 5- to 30-year bond – there are several new auctions per year that will be close to 100. For short terms, there are regular bonds, CDs and even Series I – all much easier to understand.
I totally 100% agree with you that some of these stocks (and the overall market in general) are on the verge of ridiculousness and are nothing but overdue for a correction of some sort. I’ve had to slap my hand a few times and remind myself to buy low and sell high. And I do think they are overpriced at the moment. Just my opinion. There’s always that fear of “missing the train” and therefore losing out at this being the low-buying point. It just seems like it has risen too much, too fast and that was before the election. Now it’s even worse. Being a wussy investor, I’m satisfied with making 4-4.5% safe investment at the moment. I have some stocks, but I figured there’s no reason to buy any at the moment.
I like your assessment. I think history will show you were accurate.