5-Year TIPS Gets Real Yield Of 0.724%, Highest In Nearly 9 Years

Summary

  • Investors got this reopened TIPS at a discount, because the real yield was higher than the coupon rate of 0.625%.
  • The inflation breakeven rate came in at 1.99%, slipping 13 basis points since the originating auction in April. This is a positive for investors.
  • Reaction to the auction looks positive, with the TIP ETF getting a slight bump higher after the auction’s close.

Read my full analysis on SeekingAlpha.com

Here’s the nine-year trend in 5-year real yields:

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5-Year TIPS Reopening: Don’t Let Dip In Real Yields Scare You Away

Summary

  • Real yields for this term have dipped about 8 basis points since August 1. Not a great trend heading into an auction week.
  • But current after-inflation yields above 0.75% are attractive, and would be the highest yield at auction for this term in nearly 9 years.
  • The inflation breakeven rate has dipped below 2.0%, a positive trend for TIPS investors.

Read my full analysis on SeekingAlpha.com

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July Inflation Rises 0.2%: What This Means For TIPS, I Bonds And Social Security

Summary

  • 12-month core inflation rose to 2.4%, the highest number since September 2008.
  • Non-seasonally adjusted inflation was essentially flat, meaning minimal principal increases for TIPS and little change in the six-month total that will reset the I Bond’s variable rate.
  • CPI-W was also flat, marking the first month of the three-month period that will set Social Security’s COLA for 2019.

Read my full analysis on SeekingAlpha.com

Also, I have updated my I Bonds and Inflation page with these new numbers.

Also updated: Social Security COLA calculations.

And here are new September Inflation Indexes for all TIPS.

Screen Shot 2018-08-10 at 7.45.57 AM

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Is The Flat Yield Curve Distorting The Value Of TIPS Mutual Funds?

Summary

  • Real yields are out of balance with historical norms. A 5-year TIPS is yielding only 13 basis points less than a 30-year TIPS.
  • Are we heading toward a recession? Would TIPS mutual funds benefit? Possibly, if the Federal Reserves steps in. Or, would a deflation scare set in?
  • The U.S. Treasury’s sharply increasing need to raise debt should force longer-term yields higher, sending TIPS funds lower.

One indicator I have watched for a long time is a price of $110 on the TIP ETF, which has marked a “buy signal” over the last seven years. Is that still valid?

Read my full analysis on SeekingAlpha.com

TIPS yields

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Social Security COLA Looks Likely To Top 3% In 2019

Summary

  • The year-over-year increase in CPI-W was 3.1% in June, higher than overall ‘headline’ inflation measured by CPI-U.
  • Inflation measured by CPI-W in July, August and September will be averaged and compared to 2017 to determine the Social Security COLA increase for 2019.
  • Trends suggest a COLA increase of 3.1% to 3.2% looks likely.

Read my full analysis on SeekingAlpha.com

Here are the numbers I am using to make this projection:

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