Here’s Why The I Bond’s Fixed Rate Will Fall To 0.0% On May 1

Summary

  • Real yields for TIPS are now negative across the entire maturity spectrum: 5-year, 10-year and 30-year.
  • The Treasury has no reason to keep the I Bond’s fixed rate above 0.0% when the 10-year TIPS is yielding -0.50%.
  • Act before May 1 to lock in the current fixed rate of 0.2%. Surprises can happen, but that rate will almost certainly fall to 0.0%.

Nothing in this world is certain, but it looks highly probable that the U.S. Treasury will lower the fixed rate on U.S. Series I Savings Bonds from 0.2% to 0.0% on May 1, the next reset date. How probable? I’d say 95%.

Read my full analysis on SeekingAlpha.com

 

Posted in Investing in TIPS | 3 Comments

Inflation Report Sets I Bond’s New Variable Rate At 1.06%

Summary

  • U.S. Series I Savings Bonds purchased before May 1 will pay a composite interest rate of 2.22% for six months, and then 1.26% for six months.
  • I Bonds remain the world’s best inflation-protected investment, especially if you purchase them before May 1.
  • Gasoline prices sent the U.S. economy into deflation in March. Deflation looks like a trend that will continue for many months.

The March inflation report, just released by the U.S. Bureau of Labor Statistics, locks in the I Bond’s new inflation-adjusted variable rate at 1.06%, down from the current 2.02%.

The new inflation-adjusted rate will go into effect May 1, when the U.S. Treasury will also reset the I Bond’s fixed rate, which is currently 0.2%. That fixed rate is highly likely to drop to 0.0% on May 1.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment

I Bonds Offer Opportunity As A Short-Term Investment

Summary

  • A unique feature of I Bonds is that yields are set for six-month periods and won’t change. Investors can now lock in the current yield of 2.22% for six months.
  • Deflation is coming, but shouldn’t be reflected harshly in the I Bond’s next variable rate, to be reset on May 1 based on inflation from October 2019 to March 2020.
  • Ideally, I Bonds are a long-term investment, part of a strategy of building inflation-protected cash. But a short-term option now opens up.

With the Federal Reserve slashing its key short-term interest rate to nearly zero on March 15, investors are going to see their return on safe short-term investments fall to zero in coming months.

Say goodbye to Treasury Money Market Funds paying interest of 1.5% or higher. We may not see those rates again for many months, possibly years.

Read my full analysis on SeekingAlpha.com

I Bond yield estimates

Posted in Investing in TIPS | Leave a comment

10-Year TIPS Reopening Gets A Gorgeous Result

Summary

  • This was an investor-friendly auction: The real yield of 0.68% was much higher than looked likely a week ago.
  • The inflation breakeven rate of 0.43% is “out-of-normal” low and seems to be pricing in a dire economic future.
  • Treasury markets are in flux, with asset pricing and yields difficult to predict.

One of the strangest weeks in the history of Treasury Inflation-Protected Securities ended Thursday with a beautiful result for investors: The Treasury’s reopening auction of a 10-year TIPS got a real yield to maturity of 0.680%, much higher than looked likely just days ago.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | Leave a comment

This Week’s 10-Year TIPS Reopening Looks … Who Knows?

Summary

  • Market turmoil has created incredible volatility, even for mundane investments like U.S. Treasurys.
  • Friday’s real yield of 0.04% would have been “attractive,” but it isn’t likely to hold in light of the Federal Reserve’s rate-cutting action Sunday.
  • The current 10-year inflation breakeven rate of 0.90% makes this TIPS a much more attractive investment versus a 10-year nominal Treasury. But that could also swing wildly.

In the midst of all this volatility, the Treasury on Thursday will offer $12 billion in a reopening auction of CUSIP 912828Z37, creating a 9-year, 10-month TIPS.

Read my full analysis on SeekingAlpha.com

10-year real yield

Posted in Investing in TIPS | Leave a comment

Amid Bond Rally, The TIP ETF Got Crushed. Why?

Summary

  • The TIP ETF has lost more than 6% of its value in a few days, and is falling sharply again this morning.
  • A key reason is that inflation expectations are plummeting, causing the TIP ETF price to fall versus the overall bond market.
  • The market is pricing in a severe recession. But individual TIPS are a much better investment than nominal Treasurys. And TIP funds and ETFs¬† are looking more attractive.

Investors in the TIP ETF – an index fund that holds the full range of Treasury Inflation-Protected Securities – got a big surprise this week: a stunning 6.2% drop in value amid a what appeared major “safe haven” Treasury rally.

Why did that happen?

Read my full analysis on SeekingAlpha.com

TIP versus Treasury Market

Posted in Investing in TIPS | Leave a comment

Inflation Rose 0.1% In February; Deflation Is New Risk

Summary

  • The inflation numbers came in close to the consensus, but year-over-year core inflation came in slightly high at 2.4%.
  • Investors are pricing in extremely low inflation over the next 10 years. Is this an overreaction to short-term news? Yes, I think so.
  • I Bond investors can expect a lower variable rate coming at the May 1 reset. My recommendation: Buy I Bonds, up to the purchase cap, before May 1.

U.S. inflation continued in the “moderate zone” in February, but rising turmoil in the stock and commodity markets could bring a short-term swing to deflation in coming months.

The Consumer Price Index for All Urban Consumers rose 0.1% in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, “headline” inflation increased 2.3%.

Read my full analysis on SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment