Unique Opportunity: I Bonds As An 11-Month Investment

Posted on October 14, 2020 by Tipswatch

Summary

  • We now know the I Bond’s next inflation-adjusted variable rate, which is rising to 1.68% from the current 1.06%.
  • The permanent fixed rate, currently 0.0%, will be reset on November 1, but is highly likely to remain at 0.0%.
  • The I Bond’s current terms allow it to be used as an 11-month investment that will outperform other safe short-term investments.

Everyone knows I am a big fan of U.S. Series I Savings Bonds, an investment offering returns that will track inflation closely with total safety, tax-deferred interest and solid protection against deflation.

Right now, in our interest-rate-suppressed environment of October 2020, I Bonds have become an attractive short-term (meaning 11-month) investment, while retaining the option to hold them much longer, up to 30 years.

Read my full analysis on SeekingAlpha.com

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Inflation Report Sets Social Security COLA At 1.3%; I Bond’s Variable Rate Rises To 1.68%

Posted on October 14, 2020 by Tipswatch

Summary

  • Social Security payments will increase 1.3% in January, adding about $20 a month for the average recipient. However, a hike in Medicare premiums could wipe out part of that increase.
  • The inflation-adjusted variable rate for U.S. Series I Savings Bonds will be reset to 1.68% for purchases after November 1, up from the current 1.06%.
  • U.S. inflation increased 0.2% in September, matching expectations. Gasoline prices held almost steady for the month.

The September inflation report, released Tuesday morning, is by far the most important report of the year, because it sets both the cost-of-living adjustment for Social Security and also the future inflation-adjusted rate on U.S. Series I Savings Bonds.

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Short-Term Treasury ETFs No Longer Make Investment Sense

Posted on September 25, 2020 by Tipswatch

Summary

  • After a strong run over the last 12 months, these short-term Treasury ETFs are now yielding very close to zero.
  • There’s little upside potential and little yield benefit over Treasury money market funds, which lock in your share price at $1.
  • Are these ETFs a risky investment? No, they are fine. But the reward-versus-risk equation doesn’t look appealing.

Over the last year, as short-term interest rates dropped dramatically, a lot of investors poured money into short-term Treasury ETFs as a way to capture a yield advantage over a money market account, while retaining safety.

Unfortunately, those days are over.

Read my full analysis on SeekingAlpha.com

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10-Year TIPS Reopening Gets A Real Yield Of -0.966%, Lowest In History

Posted on September 17, 2020 by Tipswatch

Summary

  • The real yield of -0.966% was slightly higher than where this TIPS was trading on the secondary market just minutes before the auction’s close.
  • The inflation break-even rate settled in at 1.65%, which looks like a reasonable number. Inflation hawks should see this as a positive for this investment.
  • This TIPS auction could be considered “normal” by the strange standards of normality in 2020.

The Treasury’s $12 billion reopening of CUSIP 912828ZZ6, creating a 9-year, 10-month Treasury Inflation-Protected Security, auctioned Thursday with a real yield to maturity of -0.966%, the lowest yield for any auction of this term.

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tips auction history

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10-Year TIPS: Keep An Eye On The Inflation Breakeven Rate

Posted on September 13, 2020 by Tipswatch

Summary

  • The 10-year real yield has dipped deeply negative, to nearly 1% below inflation.
  • But that reflects the bond market’s very low nominal yields. This TIPS’ inflation breakeven rate of about 1.67% is still appealing.
  • For the first $10,000 you invest in inflation protection in 2020, the Series I Savings Bond is the better investment. Then consider TIPS.

The U.S. Treasury is reopening CUSIP 912828ZZ6 in an auction Thursday, offering $12 billion in this 9-year, 10 month Treasury Inflation-Protected Security. Even though terms of this TIPS are hardly dazzling, I’m expecting investor interest to be strong.

Read my full analysis on SeekingAlpha.com

10-year TIPS history

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