Traveling in the endemic era

At times, it is not fun.

By David Enna, Tipswatch.com

“COVID is just a cold.”

This is how our Overseas Adventure Travel tour leader explained Europe’s (and most of the world’s) new attitude toward COVID-19. And it is a milestone in world travel, marking a dramatic change toward this now-endemic malady.

The theory is: Most people have been vaccinated. Many people have already had a bout or two with COVID. For most people, symptoms are cold-like — producing coughs, some aches and possibly a fever. Nothing too serious.

Face masks are now optional in almost all situations.

Travel policies vary from country to country, but in almost all European countries there is no need to prove you are vaccinated, wearing face masks is optional, testing for COVID is optional even if you have symptoms, and isolating is optional even if you do test positive. The European Centre for Disease Prevention and Control advises:

Travelers who develop any symptoms compatible with COVID-19 during or after travel should self-isolate and seek medical advice and test for SARS-CoV-2 to exclude a diagnosis of COVID-19.

Note the word “should.” This is not a requirement. The world is eager to bring back the flow of travelers and is transitioning to a “don’t ask / don’t tell” policy on COVID.

That is a massive change from the situation two years ago. I’ve been thinking back on our travel experiences since 2020 and realized how much things have transitioned as our fear of COVID lessens.

February 2020. During the very early days of COVID (when the U.S. probably had fewer than 100 reported cases), we traveled by boat up the Nile to Cairo. About halfway through the trip, a doctor suddenly appeared on board and hand-sanitizing stepped up. One of our travel friends was having difficulty breathing. We later learned that another Nile cruise ship — at the same ports at the same time with American travelers — had a huge outbreak of 70 cases.

We couldn’t travel overseas again for two years. But then we took off with a vengeance:

April 2022. We were with a group of 15 travelers in Sicily. To travel then you needed to 1) prove you had been vaccinated, 2) take a verified COVID test before departing and 3) take a verified COVID test before returning home. No one in our group had any symptoms of COVID. At the time, if our tour leader tested positive, he would have been banned from leading tours for one month.

May 2022. We traveled to the Czech Republic with an extension to Romania. Because of the combination of COVID and the outbreak of war in Ukraine, the main portion of the trip had only six travelers and the Romania portion, four. All the same rules applied. I can remember feeling very relieved when we tested negative for COVID in Bucharest so we could return home. No one had any symptoms of COVID.

Since June 2022, people traveling by air no longer need to provide a negative COVID test in order to enter the United States.

August 2022. This was a combination land-cruise ship experience on Viking. During the land portion (Fairbanks to Anchorage) we traveled by bus with 37 passengers. A few days in, I noticed a lot of people coughing (harshly) around us. My wife and I were wearing face masks on the bus, but many people weren’t.

To board the 900-passenger ship, you had to first test negative for COVID. Of the 37 people on our bus, 13 tested positive, including a friend we were traveling with. The 13 positive cases were sent to a hotel room and flew home the next day. No isolation was required (which wasn’t true in Canada at the time). At this point I realized that when you fly on a plane, you may be sitting next to a person with a known case of COVID.

My wife and I and our remaining friend (a doctor) boarded the Viking ship and took off. Within a couple days, we all tested positive for COVID, the first time for all of us. Symptoms were minor for us, but a bit worse for our friend. We all had come prepared with prescriptions of Paxlovid, which we began taking and isolating as much as possible. Within two days, my wife and I tested negative.

December 2022. We traveled with Overseas Adventure to Costa Rica. Travel rules had greatly eased by this point. Unfortunately, near the end of the trip, one of our travel group did get COVID and had to isolate for the remainder. So at this time, travel companies were still enforcing a five-day isolation period. The ailing person, however, flew home with the rest of us.

September 2023: We traveled in northern Greece, Albania and North Macedonia with a group of 16 that included 6 other family members. Midway through the trip, one of the cousins got COVID and he and his wife had to isolate for five days and then rejoined the trip, still wearing face masks and isolating at meals. Their rejoining caused almost-heated complaints from a couple of other travelers. But that was the policy, and the travel leader held to it.

And then … May 2024

We just returned from a 16-day trip through northern Spain and northern Portugal.

We did only the main portion of the trip, shown in center map.

As I noted earlier, European travel in 2024 is mostly “don’t ask / don’t tell” when it comes to COVID. On our trip, with 16 travelers, two arrived with active hacking coughs. By the end of the trip, that number grew to maybe 12. Face masks were not required, but my wife and I often wore them while on cross-country bus trips. Some others didn’t.

A few days before the end, my wife and I tested positive for COVID and so did at least six other people. But no testing was required and a couple travelers told us they saw no need to test <cough, cough, it’s just allergies>. I honestly think a dozen people ended up with COVID, and at least one person had more serious symptoms.

Everyone — COVID or not — flew home on the same day.

For me, the symptoms were minor — a very mild fever and a bit of congestion. My wife had a bad cough that continued for a week. We again had prepared with Paxlovid, which we began taking just before flying home. We are fine.

Final thoughts

This isn’t a travel blog, but I think this is valuable information for people who are planning overseas travel. At this point, the risks COVID presents to a vaccinated and healthy population are fairly minor … yes, more like a cold. But the risks remain.

Honestly, COVID has sapped some of the fun out of traveling. It’s not fun to travel by bus, surrounded by coughing people. It’s not fun to be constantly swapping face masks on and off and struggling to talk to people who hear only muffles.

On the other hand, this is a world we want to see and experience. So we will keep traveling. Advice:

Keep a helpful, positive spirit. If you know you are ailing, take steps to protect your fellow passengers.

Prepare for your travels by stocking up on COVID test kits and quality face masks. You may need neither, if you are lucky.

At least once a year, get a COVID vaccine booster. My most recent shot was Dec. 7, 2023. But we met a couple on this trip who were vaccinated two weeks before leaving and the husband got COVID (minor case).

Wear your face mask through the airport on your departure day and until everyone is boarded, ready for take off. That’s a pain, I know, but you do not want to get sick as you are leaving for this adventure.

If you are traveling by bus or car with people who are coughing, put on your face mask. If you are about to enter a very crowded, tight-space religious shrine …. er … skip it. Enjoy the outdoors.

If you can get a prescription to Paxlovid before you leave, do it. (Some doctors will do this; others won’t.) My doctor warned that it can have harsh side effects, but for me the only nasty effect is a lousy taste in my mouth, which remains today after my last dose Friday night.

Also, if comfort is a concern, consider traveling by river boat or a smaller cruise liner, which offer much better options for isolation and relaxation. The trade-off is losing some on-the-ground history and experiences. (There is no way I would take a 3,000-passenger cruise, however.)

Share this advice with anyone you know who is planning a trip overseas.

Happy holiday weekend, everyone.

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Retirement | Tagged , , , , , | 42 Comments

10-year TIPS reopening auction gets real yield of 2.184%, highest since 2009

By David Enna, Tipswatch.com

Today’s 10-year reopening of CUSIP 91282CJY8 — a 9-year, 8-month Treasury Inflation-Protected Security — generated a surprisingly high real yield to maturity of 2.184%, the highest for this term at auction since January 2009.

The auction apparently drew weak demand, with a sub-par bid-to-cover ratio of 2.33. The “when-issued” auction prediction, released just before the close at 1 p.m. EDT, was 2.16%. Investors were not snapping this one up, and that meant a higher real yield than expected.

This TIPS trades on the secondary market, and around 8 a.m. today it was trading with a real yield to maturity of 2.08%. That secondary-market yield climbed to 2.15% just before the auction’s close.

Definition: A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So, the “real yield to maturity” of a TIPS indicates how much an investor will earn above inflation each year until maturity.

For today’s investors, the weak demand meant that this TIPS will outperform official U.S. inflation by 2.184% over the next 9 years, 8 months. We haven’t seen an auctioned yield that high for this term since January 2009, when a 10-year originating auction got a real yield of 2.245%.

Here is the trend in market 10-year real yields over the last 15 years, showing the dramatic round-trip to yields surpassing 2.0%:

Pricing

CUSIP 91282CJY8 carries a coupon rate of 1.75% that was set by the January originating auction. Investors got an unadjusted price of 96.249477, which reflects the spread between the auctioned real yield and the coupon rate. In addition, this TIPS will carry an inflation index ratio of 1.01586 on the settlement date of May 31.

With this information, we can calculate the investment cost of purchasing $10,000 par of this TIPS at today’s auction:

  • Par value of investment: $10,000
  • Inflation index at settlement date: 1.01586
  • Accrued principal on settlement date: $10,158.60
  • Cost of investment: $10,158.60 x 0.96249477 = $9,777.60
  • + accrued interest of $66.91

In summary, an investor purchasing $10,000 par at this auction paid $9,777.60 for $10,158.60 of principal and will receive accruals matching inflation for the next 9 years, 8 months, plus an annual coupon rate of 1.75% on accrued principal.

Inflation breakeven rate

With the nominal 10-year Treasury note trading at 4.48% at the auction’s close, this TIPS gets an inflation breakeven rate of 2.30%, a bit lower than expected earlier today. It is significant to note that while the TIPS yield rose about 3 basis points at the auction’s close, the 10-year Treasury note held steady at 4.48%.

The breakeven rate is an indicator of investor expectations of inflation, but should not be considered an accurate predictor of future inflation.

Here is the trend in the 10-year inflation breakeven rate over the last 15 years, showing that today’s rate remains in the higher range, but well below the highs of early 2022.

Thoughts

I didn’t get a lot of feedback on my preview article for this auction, so I suspect there wasn’t a lot of reader interest. But the result was quite good for investors. Keep in mind that just five months ago, this TIPS originated with a real yield to maturity of 1.810%, 37 basis points below today’s result. That’s a big move.

From today’s Reuters report:

The Treasury’s $16 billion auction of 10-year Treasury Inflation-Protected Securities (TIPS) was poorly-received, suggesting investors expect price pressures will decline in the coming years. The high yield was 2.184%, higher than the expected rate at the bid deadline, which meant that investors demanded a premium to take down the note.

The bid-to-cover ratio, a gauge of demand, was 2.33, slightly lower than the previous auction’s 2.35, and the 2.40 average.

Were you an investor? What was your reaction?

Treasury will be auctioning a new 10-year TIPS on July 18. It will be interesting to watch how conditions change in the next two months.

Today’s auction closes out the history of CUSIP 91282CJY8, a TIPS that gave investors a solid first option for filling the 2034 rung of their investment ladders.

Now is an ideal time to build a TIPS ladder

Confused by TIPS? Read my Q&A on TIPS

TIPS in depth: Understand the language

TIPS on the secondary market: Things to consider

Upcoming schedule of TIPS auctions

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Inflation, Investing in TIPS, Retirement | Tagged , , , , | 29 Comments

This week’s 10-year TIPS reopening auction looks attractive

By David Enna, Tipswatch.com

Real yields have had a bumpy ride over the last several weeks, but as things settle down, it looks like this week’s reopening auction of a 10-year Treasury Inflation-Protected Security could be a promising investment.

This is CUSIP 91282CJY8, and the auction will create a 9-year, 8-month TIPS. Here is the history of that TIPS, which also trades on the secondary market:

  • Jan. 18, 2024: The originating auction generated a real yield to maturity of 1.810% and set the coupon rate at 1.75%. The unadjusted price was 99.454975, reflecting the discount investors received because of the lower coupon rate.
  • March 21, 2024: The first reopening auction got a real yield to maturity of 1.932% and the unadjusted price for investors fell to 98.380142.
  • May 17, 2024: As I am writing this on Friday at 12:20 p.m. EDT, this TIPS is trading on the secondary market with a real yield of 2.09% and a price of 97.07.

So, as I noted, as we head toward Thursday’s auction conditions are looking promising. But there is one problem: Real yields have actually been falling in recent weeks, with the 10-year dropping from its 2024 high of 2.28% on April 30 to 2.07% at Thursday’s market close.

That 21-basis-point drop was triggered by a “fairly” positive inflation report for April, which for the first time in three months matched investor expectations. Real yields initially dipped and then rebounded a bit after that report.

Here is the trend in the 10-year real yield since January 2023, showing that yields remain relatively attractive despite the recent dip, but also well below the highs of October 2023:

Click on image for larger version.

Definition: A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So, the “real yield to maturity” of a TIPS indicates how much an investor will earn above inflation each year until maturity.

Pricing

CUSIP 91282CJY8 is available to purchase at any time on the secondary market, so there is no compelling reason to wait until Thursday’s auction to pull the trigger on an investment.

The advantage of buying at auction, especially through TreasuryDirect, is that even small-lot purchases will get the auction’s high yield. The advantage of the secondary market is that you can see exactly the price and real yield you will be receiving. The negative is that you may face a small bid-ask spread. Most of the time, it doesn’t make a huge difference, but if you see a real yield you like, know that you can probably get it on the secondary market without dealing with the auction’s uncertainty.

As of Friday afternoon, this is how an auction purchase of $10,000 par of CUSIP 91282CJY8 would look (realize that conditions will change before Thursday’s auction):

  • Par amount: $10,000.
  • Inflation index on settlement date of May 31: 1.01586
  • Principal purchased: $10,158.60.
  • Price: 97.07
  • Cost of investment: $9,860.95.
  • + about $66.91 of accrued interest.

In this scenario, the investor would be paying $9,860.95 for $10,158.60 of principal and then will earn a coupon rate of 1.75% and principal accruals matching inflation for 9 years, 8 months.

Inflation breakeven rate

With a 10-year nominal Treasury note yielding 4.41% on Friday afternoon, this TIPS currently has an inflation breakeven rate of 2.32%, which is high by historical standards but seems about right in today’s elevated inflationary environment. A breakeven rate of 2.32% means that this TIPS would outperform the nominal Treasury if inflation averages more that 2.32% over 9 years, 8 months.

This chart shows the rather wild track of the 10-year inflation breakeven rate since January 2023:

Click on image for larger version.

Thoughts (from Portugal)

I am writing this Friday afternoon in Lamego, Portugal. It has been a beautiful day in the Douro Valley, with great food, wine and of course … port tastings. The people are friendly and the prices are at times amazingly cheap. I bought an excellent bottle of tawny port today at a vineyard for 8 Euros. “This price is ridiculous,” I said. The clerk said, “Everybody says that.”

Back to the TIPS …

I consider any real yield above 2.0% to be attractive, at least by standards of the last 15 years. Of course, real yields could climb higher, as they did in October 2023, or even dramatically higher if the Federal Reserve changes course toward higher rates. We can’t be sure, but collecting 2.0% above inflation is a positive thing, in my opinion.

Sanctuary of Our Lady of Remédios in Lamego, Portugal.

I won’t be a buyer at Thursday’s auction. Why? Because I already purchased this TIPS at the originating auction (real yield of 1.810%) in January and then again on April 4 on the secondary market (real yield of 2.043%). So I have now completed the 2034 tier of my TIPS ladder.

Thursday’s result could get a better real yield than either of my purchases, so … as I said … this auction remains attractive.

The TIPS auction closes Thursday at 1 p.m. EDT. Non-competitive bids at TreasuryDirect must be placed by noon Thursday. If you are putting an order in through a brokerage, make sure to place your order Wednesday or very early Thursday, because brokers cut off auction orders before the noon deadline.

You can check the current real yield for this TIPS on Bloomberg’s U.S. Yields page.

I should be back in the United States by Thursday, and I will be posting the auction results soon after the close. Here is a history of auction results for this term over the last 9 years:

Now is an ideal time to build a TIPS ladder

Confused by TIPS? Read my Q&A on TIPS

TIPS in depth: Understand the language

TIPS on the secondary market: Things to consider

Upcoming schedule of TIPS auctions

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, Inflation, Investing in TIPS, TreasuryDirect | 3 Comments

April inflation matches expectations; markets celebrate

Both all-items and core inflation increased 0.3% in April, as predicted.

By David Enna, Tipswatch.com

After three months of higher-than-expected inflation, U.S. prices in April increased on target, setting off a euphoric mood in the stock and bond markets.

The Consumer Price Index for All Urban Consumers increased 0.3% in April on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.4%. Those numbers exactly matched expectations.

Core inflation, which removes food and energy, also matched expectations, coming in at 0.3% for the month and 3.6% year over year.

For stock and bond markets, meeting expectations was just fine. By 11 a.m. EDT, the Standard & Poor 500 index was up about 0.85% for the day, and the total bond market was up about 0.57%. A lot of media headlines were putting a positive spin on the BLS report, noting that annual inflation dipped from 3.5% in March to 3.4% in April.

Of course, I could point out that all-items inflation had fallen to 3.1% in January, well below the current 3.4%. On the other hand, core inflation has been steadily declining since November 2023, and fell from 3.8% in March to 3.6% in April, a positive trend.

So, yes, overall this was a positive inflation report and one the markets needed to see. The BLS noted that increases in shelter costs (up 0.4% in April and 5.5% year over year) and gasoline prices (up 2.8% for the month but only 1.1% for the year) accounted for 70% of the all-items increase for April. More from the report:

  • The cost of food at home fell 0.2% in April and is up only 1.1% year over year. The overall food index was unchanged for the month.
  • Costs of used cars and trucks fell 1.4% for the month and are down 6.9% for the year.
  • New vehicle prices fell 0.4% for the month and year.
  • Costs for motor vehicle insurance increased 1.8% for the month and a whopping 22.6% over the last year.
  • Apparel costs increased 1.2% in April and are up 1.3% year over year.
  • The medical care index rose 0.4% in April after rising 0.5% in March.

What this means for TIPS and I Bonds

Investors in Treasury Inflation-Protected Securities and U.S. Series I Savings Bonds are also interested in non-seasonally-adjusted inflation, which is used to adjust principal balances on TIPS and set future interest rates for I Bonds. For April, the BLS set the CPI inflation index at 313.548, an increase of 0.39% over the March number.

For TIPS. The April inflation report means that principal balances for all TIPS will increase 0.39% in June, after rising 0.65% in May. Keep in mind that non-seasonally adjusted inflation tends to run higher that headline CPI from January to June, and then lower from July to December.

Here are the new June Inflation Indexes for all TIPS.

For I Bonds. The April inflation report is the first of a six-month string that will determine the I Bond’s new inflation-adjusted variable rate, which will be reset on November 1 based on inflation from April to September 2024. So far, for one month, inflation has increased 0.39%. We can’t make any assumptions from that single month. Here are the relevant data:

View historical information on my Inflation and I Bonds page.

What this means for future interest rates

The April report solidifies the Federal Reserve’s recent statements that short-term interest rates may not need to rise higher. And it probably could create momentum toward a cut in the federal funds rate later this summer. But it was just one month, and inflation came in “as expected,” still well above the Fed’s potential target of 2.0%. (The Fed more closely follows a different inflation index, Personal Consumption Expenditures, but can’t ignore a high rate of CPI.)

From today’s Bloomberg report:

While the figures may offer the Fed some hope that inflation is resuming its downward trend, officials will want to see additional readings to gain the confidence they need to start thinking about cutting interest rates. … “It does open the door to a potential rate cut later in the year,” said Kathy Jones, Charles Schwab’s chief fixed-income strategist. “It will take a few more readings indicating that inflation is coming down for the Fed to act.”

The report had an immediate effect on longer-term nominal and real yields, with the yield on a 10-year Treasury note falling about 9 basis points to 4.36% — far below the 4.65% reading at the beginning of May. The real yield on a 10-year TIPS fell about 7 basis points today to 2.05%.

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in Federal Reserve, I Bond, Inflation, Investing in TIPS, Savings Bond | Tagged , , , , | 5 Comments

My schedule … and what’s coming up

By David Enna, Tipswatch.com

No, we are not hiking El Camino de Santiago, but will walk on it a bit.

If you’ve been reading this Tipswatch site for long, you know what that headline means. I am traveling again. By the time you read this Tuesday morning, I will be somewhere in northern Spain.

And that means I will have an uncertain schedule and possibly awful Internet connections for the next two weeks. While I will try to check in on reader comments and financial news, expect my responses to be minimal.

Fortunately, we are heading into a fairly slow time for this site, since the I Bond’s fixed rate and composite rates were just set for the May to October cycle.

For certain, we can expect:

Wednesday, May 15: April CPI report. This will be issued at 8:30 a.m. Wednesday EDT, which equates to 2:30 p.m. in northwestern Spain. I am sure I will be out and about most of that day, but I will try to post a basic update in the evening. We’ll see. This report isn’t crucial, since it is the first of six that will determine the I Bond’s next fixed rate. But it could give the bond market the shivers.

Sunday, May 19, preview of 10-year TIPS auction. Because I can write this a day or two in advance, I should be able to post a preview Sunday morning on the 9-year, 8-month TIPS reopening auction set for May 23. It should be an attractive auction, but real yields have been volatile over the last week, dropping 10 basis points from Wednesday to Friday.

Thursday, May 23, 1 p.m., result of 10-year TIPS auction. If all goes well, I should be back in Charlotte by May 23 to post the auction results. Beware of jet-lagged conclusions, however.

There is an unfortunate tradition to my travels: They always seem to trigger some sort of financial crisis. It’s probably just my imagination. (And by the time I get home everything seems back to normal.) Let’s hope for calm days.

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

Posted in I Bond, Inflation, Investing in TIPS | 8 Comments