Will The Treasury Drop The I Bond Fixed Rate To 0.0%? Here’s Why It Could Happen.

Posted on October 19, 2016 by Tipswatch

Summary

  • The data support a drop to a 0.0% fixed rate, but wouldn’t the Treasury be sending an awful message?
  • You can buy now to lock in the I Bond’s current 0.1% fixed rate, or wait until November 1 and get the higher variable rate immediately.
  • A bigger question: Does a fixed rate of 0.1% really matter?

A lot of readers have been asking me why I think the Treasury could drop the I Bond fixed rate to 0.0% on November 1. I’d say if it were purely a data-driven decision, the Treasury will go with a 0.0% fixed rate. But I am hoping it will stick with 0.1% as a nod to small investors who rely on I Bonds for inflation-protected savings.

Read my full analysis at SeekingAlpha.com

 

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I Bond’s Variable Interest Rate Will Rise To 2.76% On November 1

Posted on October 18, 2016 by Tipswatch

Summary

  • This variable rate will be the highest for an I Bond in 5 years.
  • All investors in I Bonds will get the new variable rate for six months, the timing depends on the month the I Bond was purchased.
  • One question remains: What rate will the Treasury set for the fixed rate on November 1?

Prediction: I Bonds are going to a hot investment from November 2016 to April 2017. They will have variable rate of 2.76% over six months. Even if you earned zero the next six months, that’s a return of at least 1.37% in one year, beating all super-safe investments.

Read my full analysis at SeekingAlpha.com

Also, I have updated my Tracking Inflation and I Bonds page with this new information.

And here are the new TIPS inflation indexes for November.

 

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Up Next: 30-Year TIPS Reopens At Auction Oct. 20; This One Is Going To Cost You

Posted on October 14, 2016 by Tipswatch

Summary

  • CUSIP 912810RR1 has a coupon rate of 1.00%, but the yield is going to come in much lower, meaning buyers will have to pay a high premium.
  • 30-year TIPS are highly volatile. Investors at the original auction in February have seen their investment climb more than 10% in eight months.
  • The inflation breakeven rate of 1.77% is attractive, but it has been climbing off deep lows seen earlier this year.

Read my full analysis on SeekingAlpha.com

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10-Year TIPS Reopening Auctions With A Real Yield Of 0.052%

Posted on September 23, 2016 by Tipswatch

Summary

  • Buyers will pay about $101.11 for $100.40 of value, after accrued inflation is figured in.
  • The Fed’s decision to hold off on an interest rate increase drove TIPS yields lower.
  • The inflation-breakeven rate of 1.56% makes this an attractive issue for big-money investors.

Read my full analysis at SeekingAlpha.com

Sorry about my delay in posting this. The news cycle is a bit hectic in my home town of Charlotte these days. But I am safe, no problems. Just sad for my city.

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Checking in on Thursday’s 10-year TIPS reopening auction

Posted on September 21, 2016 by Tipswatch

The Federal Reserve this afternoon backed away from a short-term interest rate hike this month, but left the door open for a future increase, most likely in December. That was exactly what the market was expecting, so there’s shouldn’t be a big effect on tomorrow’s auction.

This is a reopening of CUSIP 912828S50, and the auction will create a 9-year, 10-month TIPS with a coupon rate of 0.125%. Non-competitive bids have to be placed by noon.

Here’s where the market stands Wednesday evening for this TIPS, which trades on the secondary market:

  • Bloomberg’s Current Yields page shows this TIPS trading with an after-inflation yield of 0.12% and a price of about $100.02 of value. Today’s yield to maturity is very close to this TIPS’ coupon rate.
  • The Wall Street Journal’s Closing Prices page shows this TIPS (which matures 2026 Jul 15) closed Wednesday with a real yield of 0.127% and a price of almost exactly $100 for $100 of value.
TIP ETF, Wednesday Sept 21

TIP ETF, Wednesday Sept 21

If you are thinking of investing in this TIPS, I advise waiting until about 10 a.m. Thursday morning, and then checking the trend of the TIP ETF. If the ETF’s price is rising sharply, expect a lower yield; and vice versa.

As the chart shows, the TIP ETF got a nice boost after the Federal Reserve’s interest rate announcement. A higher price means a lower real yield for investors. It’s never a nice thing when a product gets more expensive on the day before you are buying it.

Unless there’s a big market swing Thursday morning, it’s looking like this 9-year, 10-month TIPS will be getting a real yield right around the coupon rate of 0.125%.

I’d argue that the US Savings I Bond – with a fixed rate of 0.10% – is much more desirable than a 10-year TIPS with a real yield of 0.12%. The I Bond has a flexible maturity, tax-deferred interest and better deflation protection. In ‘normal’ times, a 10-year TIPS would have about a 75 basis point premium over an I Bond. Right now that premium has shrunk to about 5 to 10 basis points.

I’ll be posting the auction results after 1 p.m. on SeekingAlpha.com.

Read full versions of all my recent articles on SeekingAlpha

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