U.S. inflation was unchanged in July; what does it mean for TIPS and I Bonds?

Posted on August 16, 2016 by Tipswatch

Summary

  • July inflation came in under the consensus estimate of 0.2%.
  • Gasoline prices fell sharply, breaking a four-month string of increases.
  • Non-seasonally adjusted inflation fell 0.16% for the month, which will lower TIPS principal balances in September.

Read my full analysis on SeekingAlpha.com

Also, I’ve updated my Tracking Inflation and I Bonds page with the new numbers.

And here are new TIPS inflation indexes for September.

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Coming Thursday: Treasury Reopens A 5-Year TIPS… Is It Worth A Look?

Posted on August 15, 2016 by Tipswatch

Summary

  • The after-inflation yield looks likely to come in around -0.20%.
  • Buyers will pay a premium for the coupon rate of 0.125%, probably about $100.71 for $100 of value.
  • The inflation breakeven rate remains low enough to make this TIPS attractive for big-money investors.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 4 Comments

New 10-Year TIPS auctions with a real yield Of 0.045%, lowest in more than 3 years

Posted on July 21, 2016 by Tipswatch

Summary

  • Coupon rate was set at 0.125%, the lowest the Treasury will go.
  • Buyers had to pay a premium, an adjusted price of about $100.98 for $100 of par value.
  • The inflation breakeven rate came in at 1.54%, historically low and attractive against a nominal Treasury.

The yield ended up being lower than I expected, and it ran counter to a slight decline in the TIP ETF Thursday morning. I was expecting somewhere around 0.14%, so today’s auction indicates there is still strong demand for Treasury Inflation-Protected Securities.

Read my analysis at SeekingAlpha.com

Posted in Investing in TIPS | 5 Comments

Catching up on Thursday’s auction of a new 10-year TIPS

Posted on July 20, 2016 by Tipswatch

I’ll be working Thursday morning, so I won’t be able to post an update then. So, let’s take a look at where the auction of CUSIP 912828S50 stands right now, after the market close on Wednesday.

Last week, I theorized that this auction of a new 10-year Treasury Inflation-Protected Security could result in a real yield to maturity that was negative to inflation. But that doesn’t look likely now. (A ‘real’ yield is the yield after inflation. It doesn’t mean a negative nominal yield like we are seeing for some government bonds in Europe and Japan.)

If you check the Treasury’s Real Yield Curve Rates page, you can see that the Treasury’s estimate for the real yield on a full-term 10-year TIPS closed Wednesday at 0.13%, 19 basis points above the number on July 8. I think this Treasury estimate is the best guide for a new-issue TIPS. But that’s the last update you’ll see before the auction.

The trend over the last 12 days has been a gently rising yield, and if that continues tomorrow, this new 10-year TIPS should auction with a coupon rate of 0.125% and a real yield to maturity of about 0.13% to 0.15%.

If you are thinking about investing in this TIPS, but waiting until tomorrow to make your decision, I’d suggest waiting until at least 10 a.m. (you have until noon for non-competitive bids). Then, check the price of the TIP ETF, which closed Wednesday at $116.13. Here is the trend in the ETF price as yields have risen over the last 12 days:

trendSo … if you see the price of the TIP ETF falling Thursday morning, you can expect a yield higher than 0.13%. If you see the price rising, you can expect a yield lower than 0.13%. If the move isn’t dramatic, it shouldn’t make much difference.

TIPS auctions often involve ‘surprises,’ especially when a new issue is coming onto the market. But if there are no Earth-shattering developments overnight, I don’t see much of a surprise Thursday.

I will be posting the auction result after 1 p.m. at SeekingAlpha.com. In the meantime, ponder this chart of all 9- to 10-year TIPS auctions since 2008:

10tips

 

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U.S. inflation rose 0.2% in June; are days of deflation finally over?

Posted on July 15, 2016 by Tipswatch

Summary

  • The 0.2% number matched the consensus estimate, so no surprise for investors.
  • Non-seasonally adjusted inflation continued a trend of strong increases; it’s up 1.22% over three months.
  • Core inflation is up 2.3% over the last 12 months, certainly not ‘deflationary.’.

As usual, I posted my analysis over at SeekingAlpha.com, so please read it there.

In addition, you can use this link to see the new CPI indexes for all TIPS. June’s inflation numbers set the inflation indexes for August. June’s number continues a series of strong increases in non-seasonally adjusted inflation, which is up 1.22% since March.

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