Treasury Inflation-Protected Securities

• 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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• The coupon rate was set at 0.875%, so buyers got it at a discounted price of about $98.76 for $100 of value.
• The inflation breakeven rate came in at 2.13%, higher than recent auctions.
• Market reaction to the auction looks mild, but did the yield come in higher than expected?

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• Year-over-year inflation rose 2.5%, the highest number in nearly five years.
• Gasoline prices rose sharply in January, but core inflation still rose 0.3% without gasoline. The Federal Reserve will take note.
• The report is welcome news for holders of I Bonds and TIPS, reversing a flat inflation index over the last three months.

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Also, I have updated by ‘Tracking Inflation and I Bonds‘ page with these new numbers.

And here are the new March inflation indexes for all Treasury Inflation-Protected Securities.

• A real yield around 0.91% won’t be enough justify an investment in a highly-volatile issue, even for most buy-and-traders.
• If you’re older than 60, the 30-year term isn’t appealing as a buy-and-hold investment.
• This TIPS is likely to be cash-flow negative in a taxable account.

The U.S. Treasury announced Thursday that it will auction $7 billion in a new 30-year Treasury Inflation Protected Security (CUSIP 912810RW0) on Thursday, February 16. I haven’t been a fan of the 30-year TIPS maturity for several years, especially when after-inflation yields are well below the 2% benchmark typical in such a long-term investment.

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