Treasury Inflation-Protected Securities

• The current trend indicates a real yield around 0.88%, which is attractive, at least based on auctions over the last seven years.
• The problem? A 5-year TIPS is currently yielding 1 basis point higher than a 10-year. Why buy a longer-term with a lower yield?
• The inflation breakeven rate is trending at 2.12%, still in the “neutral zone” and below current U.S. inflation of 2.7%.

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• August headline inflation came in below the consensus for the month and year. Core inflation was also below the consensus.
• The current trend in CPI-W would place the 2019 Social Security cost-of-living increase in a range of 2.7% to 3.0%, with one month remaining for the calculation.
• Non-seasonally adjusted inflation increased just 0.06% in August, after a 0.01% increase in July. What does this mean for TIPS and I Bonds?

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Also:

1. I have updated my Tracking Inflation and I Bonds page with the new numbers.
2. I have also updated my Social Security COLA page with an update on the 2018 calculation.
3. And here are the updated October Inflation Indexes for all TIPS.

• Real yields for this term have dipped about 8 basis points since August 1. Not a great trend heading into an auction week.
• But current after-inflation yields above 0.75% are attractive, and would be the highest yield at auction for this term in nearly 9 years.
• The inflation breakeven rate has dipped below 2.0%, a positive trend for TIPS investors.

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• Real yields are out of balance with historical norms. A 5-year TIPS is yielding only 13 basis points less than a 30-year TIPS.
• Are we heading toward a recession? Would TIPS mutual funds benefit? Possibly, if the Federal Reserves steps in. Or, would a deflation scare set in?
• The U.S. Treasury’s sharply increasing need to raise debt should force longer-term yields higher, sending TIPS funds lower.

One indicator I have watched for a long time is a price of $110 on the TIP ETF, which has marked a “buy signal” over the last seven years. Is that still valid?

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