Treasury Inflation-Protected Securities

President Trump fires head of the Bureau of Labor Statistics

Posted on August 1, 2025 by Tipswatch

By David Enna, Tipswatch.com

President Trump just posted this on his TruthSocial site:

Obviously, the president did not like the July jobs number, which came in at 73,000 added, less than the expected 100,000. But he was more angered by a revision — amounting to much lower jobs numbers for May and June, potentially caused by uncertainty in the aftermath of “Liberation Day” tariffs.

What’s interesting is that the lower-than-expected jobs numbers strongly support the president’s call for lower interest rates, as reflected in this Wall Street Journal headline today: “Cooling Job Market Opens Door to September Cut Despite Inflation Jitters.”

The latest jobs report shows how a series of policy experiments in the early months of the Trump administration could be slowing the economy and labor markets. They include a crackdown on immigration that could reduce the number of people available to work, an increase in tariffs that might dampen demand, and job cuts for federal workers and other contractors and nonprofits that rely on government partnerships. …

The three-month average of private job growth fell to 52,000, down from 158,000 in February and the lowest since last August.

The firing of BLS commissioner Erika McEntarfer is disturbing because it signals that Trump will be unwilling to accept bad news in economic statistics, even if the news is accurate. The BLS — which issues the crucial monthly inflation report — is an independent and non-partisan division of the federal government, staffed almost entirely by economists and statisticians. It is unlikely that McEntarfer made a “call’ to lower these job numbers to embarrass Trump.

The United States financial system is built on reliable and (hopefully) accurate economic statistics. In this case, the BLS back-tracked on earlier, more-positive jobs reports. So … mistakes need to be corrected. A comment on the firing from a Bloomberg article:

“If this holds, and I assume it will, it would be a very big deal. We would not be able to have great confidence in the integrity of the data going forward,” said Julia Coronado, founder of the research firm MacroPolicy Perspectives LLC. “This data is a public service of enormous value, and its integrity is essential.”

And I had to laugh at Sen. Elizabeth Warren’s reaction, posted on X.com. (Warren agrees with Trump, by the way, that interest rates should be lowered):

Instead of helping people get good jobs, Donald Trump just fired the statistician who reported bad jobs data that the wanna-be king doesn’t like.

The inflation picture

Just about weekly, I get comments or feedback from readers worried that U.S. inflation numbers will be doctored to put a positive light on the Trump administration and its policies. My feeling has always been, “I need to see evidence.” Inflation in the June report came in higher than expected, which was a good sign the data are not being manipulated.

Back on June 5, I wrote about how the BLS was expanding its use of “estimation” in calculating the Consumer Price Index, because of DOGE-required job cuts. My conclusion then:

So, without any evidence to the contrary, I will accept that the U.S. inflation numbers will continue to be “relatively accurate,” which is about as good as they ever were. But we have to accept that budget and staffing cuts at the BLS are going to lead to less accuracy, not more accuracy.

Apparently, the jobs report is subject to a lot of revisions, partially caused by low response rates to BLS surveys. But as months pass, the BLS economists can get a clearer idea of labor reductions, or increases, so revisions are needed.

Today’s firing of the BLS commissioner is troubling. McEntarfer could have been replaced quietly at any time in last last six months. But instead the president choose the one day he got bad news. That obviously will harm morale at the BLS, and potentially send very bad message: “Good news or else.”

As I have said before, my advice is to “be wary.”

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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.

Posted in Inflation | Tagged economics, economy, finance, inflation, news | 84 Comments

Let’s offer praise for high interest rates

Posted on July 27, 2025 by Tipswatch

Do you agree? Probably not. But high interest rates benefit savers.

By David Enna, Tipswatch.com

Let’s step back in time, to 1965: I was 12 years old and folks from a nearby Savings and Loan came into my classroom to encourage students to open a “passbook savings account.” They even gave us neat little folding books to store dimes and quarters to build up the first deposit.

The passbook accounts are a thing of the past, but in the 1960s they generally paid an interest rate of 5%, and in fact were capped at 5.5% through the mid-1980s. I opened the account — with 5% interest — but I saved a few books of dimes and quarters and still have them stashed away. All of these coins were the silver versions, now worth much more than face value.

So … 5%? At the time, I wasn’t impressed. Sixty years later, I’d jump for joy over 5% interest.

And that’s my point: Current Treasury interest rates aren’t historically high, hovering around 4.3% for much of the nominal yield spectrum in July 2025. That’s close to the effective federal funds rate of 4.31%, which may begin declining soon, probably slowly down about 100 basis points over 12 to 18 months. This chart shows that today’s short-term interest rates are fairly normal, or even low, historically:

President Trump is lobbying for a 300-basis-point cut in the federal funds rate, which would bring it to about 1.3%. I am not sure that is a serious proposal, but the president will have a lot more say about that next year, when he names a new chairman of the Federal Reserve.

What would be the result of dramatically lower short-term interest rates?

The yield curve could steepen, with short-term rates falling and longer-term rates potentially holding stable, or declining far less.
Financing the federal deficit would be much less expensive, especially if the Treasury shifted its issuance to short-term T-bills.
The housing market could get a boost, if mortgage rates fell. But there is no guarantee of that, since the mortgage rates are generally tied to the 10-year Treasury note.
Credit card interest rates would likely fall (the current average is 21.4%), but would probably remain well above 15%.
U.S. economic growth could get a boost.
U.S. inflation would very likely increase.

We are in an era of very high U.S. government borrowing, continuing over the next decade. Longer-term Treasury rates — and the linked mortgage rates — aren’t likely to fall dramatically unless the Federal Reserve launches another era of bond-buying quantitative easing. That would be disastrous, in my opinion.

Is inflation low enough to justify greatly reducing the federal funds rate? U.S. inflation is currently running at an annual rate of 2.7% — above the 30-year average of 2.5%. Today’s inflation could justify a small, gradual cut in rates, but nothing more, in my opinion.

High rates benefit savers

My point of view on this issue comes from being a life-long saver with no debt and a cash reserve to fund my needs in retirement. So, yes, maybe I am an outlier. For much of the decade from 2011 to 2022, I was earning about 0.05% on my cash. Today, I can earn 4%+, which amounts to a sizable boost in income. For example, in 2020 my cash holdings at Fidelity paid $5 in interest. Last year that rose to more than $3,000.

In addition, the surge in real interest rates in 2023 allowed inflation-wary investors to build holdings in Treasury Inflation-Protected Securities, which can provide a guaranteed inflation-protected withdrawal rate for the future. The 10-year real yield rose from -0.97% in January 2022 to over 2.0% in December 2023.

Do the math. Let’s assume you have a portfolio allocation of 60% stocks and 40% bonds, a common allocation for people in or nearing retirement. Here is how lower interest rates would affect the interest payments coming from the bond allocation:

For a person with $1 million in investments, a 300-basis-point drop in interest rates across all maturities would result in $12,000 less in current annual income. On the other hand, the value of the investor’s bond funds would increase as interest rates fell. So in reality a 300-basis-point drop would hurt more if you are holding sizable cash reserves, a typical allocation for people in retirement.

I Bonds and TIPS. In times of very low interest rates due to Federal Reserve manipulation, TIPS can have negative real yields, meaning the investment is guaranteed to under-perform inflation. That is undesirable, but is in line with nominal yields, which will also lag inflation.

I Bonds are a much better option, because at the very least they will match future inflation, even with a 0.0% fixed rate. In mid-2020, when the 4-week Treasury bill was paying 0.11% (on a good day) I Bonds had a variable rate of 1.06%, about 10-times higher.

Conclusion

While falling interest rates would offer benefits to U.S. consumers, they would also enforce a lost-opportunity cost for savers and people holding cash reserves in retirement.

I am not suggesting that the Fed should increase interest rates. As I said, I think short-term rates could fall up to 100 basis points in the next 12 to 18 months, if inflation remains under control. My ideal is to have short-term interest rates running higher than inflation. If inflation begins to rise, rate cuts will be potentially destructive.

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Posted in Bank CDs, Cash alternatives, Federal Reserve, Inflation, Retirement, Treasury Bills | 36 Comments

New 10-year TIPS gets real yield of 1.985% to solid investor demand

Posted on July 24, 2025 by Tipswatch

By David Enna, Tipswatch.com

The Treasury’s largest 10-year TIPS auction in history got a warm welcome from investors, generating a real yield to maturity of 1.985% — a bit below expectations, an indication of solid demand.

The auction size was $21 billion, up from $20 billion at the most recent originating auction in January, and up from $19 billion last July. But investors were not daunted. The “when-issued” yield prediction for this auction was 1.99%, but the result came in slightly lower, a good indication of demand. The bid-to-cover ratio was 2.41, also showing decent demand.

This is CUSIP 91282CNS6, a new 10-year Treasury Inflation-Protected Security that will mature on July 15, 2035. Its coupon rate was set at 1.875%.

Definition: The “real yield to maturity” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 1.985% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 1.985% for 10 years.

The auctioned yield was slightly below recent trading in the 10-year TIPS market, which has seen real yields hovering around 2.0%. Here is the trend in the 10-year real yield over the last 2 1/2 years:

Pricing

Because the real yield of 1.985% was above the coupon rate of 1.875% — which is always the case with a new TIPS — CUSIP 91282CNS6 auctioned at a discounted unadjusted price of 99.009902. In addition, this TIPS will carry an inflation index of 1.00108 on the settlement date of July 31. With that information, we can calculate the exact cost of a $10,000 par value investment at today’s auction:

Par value: $10,000
Actual principal purchased: $10,000 x 1.00108 = $10,010.80
Cost of investment: $10,010.80 x 0.99009902 = $9.911.68
+ accrued interest of $8.16.

In summary, an investor purchasing $10,000 of this TIPS at today’s auction paid $9.911.68 for $10,010.80 of principal as of the July 31 settlement. From that point on, the investor will earn accruals matching U.S. inflation, plus an annual coupon rate of 1.875% applied to inflation-adjusted principal.

Inflation breakeven rate

With the nominal 10-year Treasury note trading with a yield of 4.40% at the auction’s close, this TIPS gets an inflation breakeven rate of 2.41%, a bit higher than recent results. This means the TIPS will outperform the nominal Treasury if inflation averages more than 2.41% over the next 10 years. (I’d rule this as a toss-up, but I’d prefer the TIPS for its built-in inflation protection.)

Here is the trend in the 10-year inflation breakeven rate over the last 2 1/2 years, showing the high volatility in inflation sentiment:

Auction thoughts

I wasn’t an investor (the 2035 rung is full on my TIPS ladder) but nevertheless I was holding out hope for the real yield to break higher than 2.0%, a nice milestone. It was close, but apparently solid demand kept a lid on the real yield.

No matter. The real yield of 1.985% is a solid result. No need for investor despair.

This TIPS will get reopening auctions in September and November and another new 10-year TIPS will be auctioned in January. It will be interesting to watch where the longer-term Treasury yields head in upcoming months. Here is a history of 9- to 10-year TIPS auctions over the last 3 1/2 years:

• Now is an ideal time to build a TIPS ladder

• 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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Posted in Federal Reserve, Inflation, Investing in TIPS, TreasuryDirect | Tagged interest-rates, investing, personal-finance | 10 Comments

10-year TIPS auction offers another attractive opportunity

Posted on July 20, 2025 by Tipswatch

July 24 update: New 10-year TIPS gets real yield of 1.985% to solid investor demand

By David Enna, Tipswatch.com

On Thursday, July 24, the U.S. Treasury will offer $21 billion in a new 10-year Treasury Inflation-Protected Security, CUSIP 91282CNS6. This is shaping up to be an attractive auction, likely generating a real yield to maturity close to 2%, or higher.

The coupon rate and real yield will be set by the results of the auction, which closes at 1 p.m. EDT. But you can get a fairly accurate idea of the likely real yield by checking the Treasury’s Real Yield Curve estimates, which update at market close each day.

Each day since July 2, the 10-year real yield has closed above the 2.0% level, which is traditionally an attractive milestone. Anything can happen by Thursday’s auction, but a range around 2% seems likely.

This auction size of $21 billion, by the way, is the largest in history for a new or reopened 10-year TIPS. It is up from $20 billion at the most recent originating auction in January, and up from $19 billion last July.

So far, these larger auction sizes haven’t greatly affected demand. The bigger issue seems to be the market’s acceptance of longer-term Treasurys at a time of rising future deficits.

Definition: The “real yield to maturity” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 2.03% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 2.03% for 10 years.

Note that the January auction of a new 10-year TIPS (CUSIP 91282CML2) got a real yield of 2.243%, the highest for this term at auction in 16 years.

So is a real yield of 2.03% attractive? Yes, in a historical perspective. Real yields could certainly continue climbing higher, but 2% is a solid above-inflation return. Here is the trend in the 10-year real yield over the last 20 years, showing the huge gap from 2011 to 2022 when the 10-year real yield rarely exceeded 1%:

Pricing

Because this is an originating auction, this TIPS should get a price close to, or a bit below, par value. The coupon rate will be set at the 1/8th percentage fraction below the auctioned real yield (for example, 2.00% for a real yield of 2.05%), so the unadjusted price will be slightly discounted. In addition, this TIPS will have a minimal inflation index of 1.00108 on the settlement date of July 31.

In the end, the adjusted price should be close to 100, meaning the investor will be paying par value, or very slightly less or slightly more. Order $10,000 of this TIPS and you will probably have an investment cost of about $10,000.

Inflation breakeven rate

The 10-year Treasury note closed Friday with a nominal yield of 4.44%, setting up an inflation breakeven rate of 2.41%, which is higher than the result of any auction of this term going back to a May 2022 reopening at 2.61%. (But it is still well below the 20-year high of 3.02% hit in April 2022.) A high inflation breakeven rate indicates that a TIPS is “expensive” versus the nominal Treasury.

This rate is likely to change by Thursday, and I wouldn’t be surprised to see it go lower. But the market is facing a lot of uncertainty about future inflation. Here is the trend in the 10-year inflation breakeven rate over the last 20 years, showing the recent trend of breakevens in the range of 2.0% to 2.5%:

Thoughts

This is a new TIPS, so it isn’t available on the secondary market. If you want a TIPS maturing in July 2035, you can either buy at this auction or wait for later opportunities on the secondary market. (Trading in a new TIPS can sometimes be slim in initial weeks.)

I won’t be a buyer because I filled the 2035 rung of my TIPS ladder at the January auction. (The higher real yield was just luck, not a clever strategy.) Now my next purchase will be in January 2026, to fill the 2036 rung.

If the auctioned real yield maintains around 2% or above, the result will be attractive for investors who plan to hold to maturity. Real yields could go higher, but collecting 2% above inflation for 10 years is sound. (And a reminder: Investing in TIPS won’t make you rich; it is a strategy for preserving capital.)

This TIPS auction closes Thursday at 1 p.m. EDT. Non-competitive bids at TreasuryDirect must be placed by noon Thursday. If you are putting an order in through a brokerage, make sure to place your order Wednesday or very early Thursday, because brokers cut off auction orders before the noon deadline.

I will be posting the auction results soon after the close on Thursday. Here is a history of auction results for this term over the last 5 years:

• Now is an ideal time to build a TIPS ladder

• 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 for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Inflation, Investing in TIPS, TreasuryDirect | Tagged bonds, investing, personal-finance | 33 Comments

Forecast: Social Security COLA for 2026 should be around 2.8%

Posted on July 18, 2025 by Tipswatch

Of course, this forecast, and every other one you read, may be wrong.

AI image for “Social Security COLA.” Classic! Source: Perchance.org

By David Enna, Tipswatch.com

It’s July, and that means it is time for my annual adventure trying to forecast next year’s Social Security cost-of-living adjustment. I’m usually fairly accurate, but rarely 100% correct.

Last year, on July 28, I predicted the COLA would come in at 2.7%. Instead it was 2.5%. In 2023, I projected a range of 3.0% to 3.2%, and the result was 3.2%. You get the picture. This is not an exact science. But it is important to understand the needlessly complex way the COLA is calculated, which is rarely explained in mainstream media.

The index. The Social Security Administration does not use the standard measure of inflation that you see reported each month. Instead it uses CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers, which often runs slightly lower than the standard CPI-U. See this.
The time period. Instead of using a specific annual rate of inflation, the SSA looks at an average of CPI-W indexes for three months, July to September, and compares that to the average from a year earlier. In 2024, for example, the three-month average was 308.729, an increase of 2.5% over the average for 2023. So the COLA for 2025 was set at 2.5%.
The summer months. Inflation can be notoriously volatile in the months of July to September. We could easily see a month of high-ish inflation, or a month of deflation. That means any Social Security COLA projection — including mine — is just an educated guess.

The June inflation report, released this week, set the baseline for this COLA calculation. For June, the BLS set the CPI-W index at 315.945, an increase of 2.6% over the last year. So does that mean the Social Security COLA will end up being 2.6%? No, that is the baseline, but the actual COLA calculation will be based on the average of CPI-W indexes for July to September.

In this chart, I have provided five potential monthly inflation scenarios for the July to September period — 0.0% per month to 0.4% per month — and then calculated the effect on the eventual Social Security COLA.

Most likely, none of these scenarios will end up being accurate. Anything can happen, including a bout of deflation. But I think the scenario with the highest probability is inflation averaging close to 0.3% a month over the three months, resulting in a Social Security COLA in the range of 2.8% to 3.0%. So in my headline I said “around 2.8%.”

That’s a conservative estimate (the COLA could be higher). This is a risky prediction because inflation often flops around in the summer months — some months higher, some months lower. But 2025 is an unusual year, because 1) the inflationary effect of U.S. tariffs is starting to be felt across the economy, and 2) the baseline inflation numbers for 2024 were quite low, making a higher increase this year more likely.

No summer month in 2024 recorded an inflation rate of 0.2%, and in fact in August CPI-W inflation was very close to zero. I based my projection last year (conservatively, I must say) at 0.2% a month. That is why my prediction was too high.

According to the SSA, the average Social Security benefit payment for retired workers in June 2025 was $1,952. Increase that amount by 2.8% and you get a monthly payment of $2007, an increase of about $55 a month.

What others are saying

Everything I wrote up to this point was done before checking any other forecasts (my annual tradition). So let’s now see what others are predicting:

This is from Money.com:

New estimates released Tuesday from both The Senior Citizens League, or TSCL, and independent Social Security and Medicare policy analyst Mary Johnson put the upcoming COLA between 2.6% and 2.7%, based on inflation data through June.

The Senior Citizens League puts a lot of research behind its forecast, so it has credibility. Its prediction is lower than mine, so there you go. I would tend to lean on the higher side this year. (Last year, the League predicted an increase of 2.6%, better than my prediction of 2.7%.)

Rising Medicare costs

And now the bad news … Medicare Part B monthly premiums are automatically deducted from Social Security for most enrollees. Medicare is predicting that the standard Part B premium will increase from $185 to $206.50 in 2026. That’s an 11.6% jump, much higher than the likely increase in the Social Security COLA.

The same thing happened this year, when the COLA increased 3.2% but Part B costs increased about 6%. See more on this topic. The net effect is that retiree benefits will be falling behind inflation. But some of that pain will be eased by the new $6,000 boost in the standard deduction for many people over 65.

SSA COLA versus CPI

The combination of using CPI-W and the smoothing effect of a three-month average often results in the Social Security COLA being lower than annual CPI. The Senior Citizens League has lobbied for years to replace CPI-W with CPI-E, an index that more accurately reflects costs faced by older Americans.

However, for benefits in 2025 the COLA was 2.5%, slightly surpassing CPI-U at 2.4%. The reverse could happen this year, even if the COLA reaches 2.8%.