Treasury Inflation-Protected Securities

• Inflation breakeven rates have been rising fairly steadily since February 2016 and now are in the ‘neutral’ zone of value.
• When inflation breakevens rise, TIPS outperform nominal Treasurys.
• The lower the breakeven rate, the higher the ‘margin of safety’ for TIPS investors versus nominal Treasurys.

The inflation breakeven rate is a very accurate measure of the relative value of TIPS versus nominal Treasurys, and a possible predictor of the relative future performance of the two asset classes.

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• The 0.5% increase in ‘headline’ inflation was well above the 0.3% consensus estimate.
• Core inflation rose 0.3%, also above the consensus estimate of 0.2%.
• Non-seasonally adjusted inflation rose 0.54% in January; what does this mean for holders of TIPS and I Bonds?

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

And here are the new March Inflation Indexes for all TIPS.

• 30-year real yields have been climbing, but not as quickly as yields for 5- and 10-year TIPS.
• The inflation breakeven rate is currently a reasonable 2.15%, making this issue competitive with a nominal 30-year Treasury.
• Risk/reward just isn’t good enough to justify an investment, unless you can be sure of holding it for 30 years.

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• Your cash in brokerage accounts is probably earning near zero. And your local bank or credit union won’t offer you much more.
• 4-week Treasurys are paying top-of-the-market yields with a very short term. They will react quickly to rising rates, with no credit risk and no interest rate risk.
• You can buy them with no commission at Treasury Direct and set up automatic reinvestments.

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• The real yield of 0.548% was the highest for any 9- to 10-year TIPS auction since January 2016.
• The coupon rate was set at 0.500%, the first time in history that any 10-year TIPS received this coupon rate.
• The inflation breakeven rate climbed to 2.06%, highest in more than three years.

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• The current real yield estimate of 0.54% would be the highest at auction since January 2016.
• The inflation breakeven rate has inched up to 2.01%, but that’s still attractive enough versus the nominal Treasury’s yield of 2.55%.
• Looking ahead: 5 more auctions of this maturity in 2018.

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