Treasury Inflation-Protected Securities

• Inflation report on April 14 will set the I Bond’s six-month variable rate, taking effect May 1.
• Right now, it looks like the new six-month variable rate could be lower than the current 2.76%.
• However, it’s possible the May 1 fixed rate – which stays with the I Bond forever – will rise above the current 0.0%.

The idea with I Bonds is to build a large inflation-protected cache, as part of an overall portfolio that includes stocks, bonds, nominal Treasurys, TIPS, bank CDs, mutual funds. The difficulty is that there is a $10,000 per person per year purchase limit on I Bonds, so to build a large stockpile you have to buy them every year. And then the question is: When do you make the purchase?

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• 10-year TIPS yields have been holding under 0.50% even as the Federal Reserve raises short-term rates.
• The inflation breakeven rate dipped to 1.95%, under the 2.00% mark where it had been riding for most of 2017. Inflation expectations are stable right now.
• Buyers at today’s reopening got this TIPS at a slight discount and a slightly higher yield than at the originating auction in January.

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• A week out, CUSIP 912828V49 is trading with a real yield to maturity of 0.48%.
• Its inflation-breakeven rate is 2.04%, right in the mid-range of inflation expectations since 2009.
• Is it a buy? Maybe not at the current yield, but watch for volatility next week.

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• The 12-month increase of 2.7% was the largest since March 2012.
• Gasoline prices fell in February, moderating overall inflation. But they’re still up 30.7% over the last year.
• Non-seasonally adjusted inflation rose 0.31%, which will boost the principal balances of TIPS in April. One month is left in the I Bond rate-setting period.

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

And here are the new TIPS inflation indexes for April.

• The real yield on a 10-year TIPS has risen 29 basis points in recent weeks.
• At the same time, the inflation breakeven rate has declined – slightly.
• The driving force? A rise in nominal rates, which will nearly always pull the TIPS yield higher.

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