Treasury Inflation-Protected Securities

• CUSIP 9128283R9, with a coupon rate of 0.5%, probably will auction with an after-inflation yield near 0.75%.
• That means buyers will get it at a discount to par value, about $97.50 per $100 before accrued inflation is added in.
• The inflation breakeven rate is in the ‘neutral’ zone, meaning this TIPS is fairly priced versus a nominal 10-year Treasury.

I’d say this auction looks attractive. The inflation breakeven rate is reasonable and if the 10-year yield can hold above 0.75%, it would mark the highest yield since May 2011 for a 9- to 10-year TIPS at auction. That’s nearly seven years!

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• Inflation breakeven rates have been rising fairly steadily since February 2016 and now are in the ‘neutral’ zone of value.
• When inflation breakevens rise, TIPS outperform nominal Treasurys.
• The lower the breakeven rate, the higher the ‘margin of safety’ for TIPS investors versus nominal Treasurys.

The inflation breakeven rate is a very accurate measure of the relative value of TIPS versus nominal Treasurys, and a possible predictor of the relative future performance of the two asset classes.

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• The 0.5% increase in ‘headline’ inflation was well above the 0.3% consensus estimate.
• Core inflation rose 0.3%, also above the consensus estimate of 0.2%.
• Non-seasonally adjusted inflation rose 0.54% in January; what does this mean for holders of TIPS and I Bonds?

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

And here are the new March Inflation Indexes for all TIPS.