10-Year TIPS Reopening Gets Real Yield Of 0.174%, Lowest In 3 Years

Summary

  • Real yields are near Treasury-estimate lows for 2019, but have popped slightly higher in recent weeks.
  • Today’s auction yield of 0.174% meant that investors had to pay a premium to get a 0.250% after-inflation coupon rate.
  • The inflation breakeven rate came in at 1.60%, a three-year low. A number this low had to spur interest from big-money investors.

I’d suggest steering away from five-year TIPS yielding lower than 0.40% and 10-year TIPS below 0.65%. It may be a while before we see yields that high again.

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Avoid This Week’s 10-Year TIPS Reopening

Summary

  • The real yield to maturity looks likely to come in at around 0.22%, well below the yields of 10 months ago.
  • The inflation breakeven rate is currently running at 1.68%, a low number that should draw interest in this TIPS from big-month investors.
  • For a small-scale investor, the U.S. Series I Savings Bond offers a better yield and better terms. But make your purchases before November 1.

The U.S. Treasury announced last week it will auction $12 billion of a reopened CUSIP 9128287D6 Thursday, creating a 9-year, 10-month Treasury Inflation-Protected Security.

Although TIPS traders may be eyeing this issue as a potential money maker, I’m going straight to the point: Avoid it.

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August Inflation: What It Means For Social Security, TIPS And I Bonds

Summary

  • Headline inflation numbers matched the consensus forecast, but core inflation ran higher than expected. Gasoline prices were down, moderating overall inflation.
  • With one month of data remaining, the Social Security COLA looks likely to increase 1.6% to 1.8% for January payments.
  • The I Bond’s new variable rate, to be reset November 1, looks likely to be higher than the current rate of 1.4%.

There was an upside surprise in core inflation — which removes food and energy — with core inflation rising 0.3% in August and 2.4% over the last 12 months. The consensus estimate was for 0.2% for the month and 2.3% year-over-year.

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Ridiculous Fact: EE Bonds Are Now A Stellar Long-Term Investment

Summary

  • The lowly EE Savings Bond now offers substantial yield advantages over similarly safe investments of the same term around the world.
  • EE Bonds make sense only for investors who can hold them 20 years, creating an effective yield of 3.53%, compounded.
  • They can be used as part of a 20-year plan toward a college education or retirement. Avoid them if you can’t be sure of holding them 20 years.

This doesn’t happen often, but in September 2019, a U.S. Savings Bond has become one of the very best bond investments in the world.

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30-Year TIPS Auctions With Real Yield Of 0.501%, Lowest In Nearly 7 Years

Summary

  • Today’s reopening auction generated a real yield of 0.501%, a whopping 59 basis points lower than the originating auction on February 21, 2019.
  • Investors had to pay a huge premium for the 1.0% coupon rate, about $115.68 for about $101.79 of value, after accrued inflation is added in.
  • Nevertheless, this auction appears to have been met with strong demand from big-money investors.

The real yield was down a bit from where this TIPS was trading on the secondary market at noon, an hour before the auction close. At that time, the real yield was 0.52%. The lower yield at auction indicates this issue had solid demand from investors.

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