Treasury Inflation-Protected Securities

The Consumer Price Index for All Urban Consumers increased 0.4% in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, headline inflation rose 1.1%.

While that’s a sharp increase, it was expected (it matched the consensus estimate of 0.4%, according to Barrons.) Non-seasonally adjusted inflation was up 0.47% in April.

Read my full analysis at SeekingAlpha.com

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

The US Treasury announced this morning that it will reopen CUSIP 912828N71 at auction on May 19, creating a 9-year, 8-month Treasury Inflation-Protected Security.

This TIPS originally auctioned on January 21 with a coupon rate of 0.625% and a real yield (after inflation) to maturity of 0.725%. But now, four months later, the TIPS market has taken a dismal turn for new investments:

I posted the Treasury’s breaking news this morning at SeekingAlpha.com. Here is the summary:

• I Bonds purchased from May to October will pay a composite rate of 0.26%.
• EE Bonds held for 20 years will still double in value and pay an effective interest rate of 3.5%.
• I Bond investors will get another shot with November’s rate reset.

I think this is pretty good news for investors in I Bonds and EE Bonds. The Treasury didn’t scale back on the terms of either bond.

Read my analysis at SeekingAlpha.com

Sometimes it seems that way. I invested in EE Bonds in 1992 and I’m still holding them. They doubled in value in 12 years, and are still paying 4% interest until they drop dead in 2022.

I admit I haven’t bought EE Bonds since then but when I look at them right now, I’d say they are attractive enough to at least look at as part of your super-safe allocation.

Today, they pay a fixed rate of 0.1%, and that’s the permanent fixed rate. But that’s irrelevant. Under the current EE Bond terms, your original face value automatically doubles after 20 years. That’s equals a 3.5% return, tax deferred. Not exciting, but better than the 2.3% currently paid by a 20-year Treasury, and also better – by 80 basis points! – than the 2.7% currently paid by a 30-year Treasury.

I have been wondering for awhile why the Treasury retains the 20-year doubling term. Is it out of whack with the market. Is it possible the terms of EE Bonds could change?

I’ve posted an analysis of my thinking over at SeekingAlpha.com:

Yes, EE Bonds Are A Good Investment, But If You’re Interested, Buy Them Before May 1