Why are TIPS bonds only paying about 2⅓% when inflation is at 7.9%?

[kmiklas]

Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. [1]

This instrument seems to be asleep at the wheel.

With inflation weighing in at about 8%, and TIPS bonds paying about 2⅓%. I did the calcuations, and the numbers aren't adding up... maybe one of you can check my math.

Can anyone explain why TIPS bonds aren't covering the inflation rate, when that's their raison d'être; their purpose for existing?

1. https://www.treasurydirect.gov/indi..., or,original principal, whichever is greater.

 

[CactusWren]

I'm reading the principal changes w/CPI, not the rate "which is set at auction, remains fixed throughout the term": https://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_gsrlist.htm (2nd bullet)

The Series I savings bonds have a floating rate that follows a formula based on CPI and fixed rate (current combined rates is 7.12%): https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

 

[kmiklas]

I'm reading the principal changes w/CPI, not the rate "which is set at auction, remains fixed throughout the term": https://www.treasurydirect.gov/instit/statreg/auctreg/auctreg_gsrlist.htm (2nd bullet)

The Series I savings bonds have a floating rate that follows a formula based on CPI and fixed rate (current combined rates is 7.12%): https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

Thanks... one would think that TIPS are a good buy in this inflationary market.

It still perplexes me why gold hasn't shot up to at least USD3000

 

[CactusWren]

Thanks... one would think that TIPS are a good buy in this inflationary market.

It still perplexes me why gold hasn't shot up to at least USD3000

Yeah this whole macro econ situation is perplexing, good word haha

I maxed out my Series-I purchases for '21 and '22, haven't touched TIPS (besides having an allocation of the IVOL etf for a few months https://www.ivoletf.com/ -- I ended up dumping it)

This YT show has been interesting, might give you some more ideas to make sense of this craziness

 

[2rosy]

isn't inflation closer to 13%

 

[zdreg]

Thanks... one would think that TIPS are a good buy in this inflationary market.

It still perplexes me why gold hasn't shot up to at least USD3000

re: perplexion Every commodity/stock moves on it own schedule, while seemingly random. It is just like a woman. That is why the stock market is always referred to as a she.

 

[kmiklas]

isn't inflation closer to 13%

AAAGH!!! You're scaring me!!!

In the USA? Would you kindly cite a reference to this number?

 

[wiesman02]

isn't inflation closer to 13%

no

 

[zdreg]

1. Calculate your own basket
2. Expect that the government lies in order not to pay the full cost of living adjustment to social security recipients and to make you pay higher taxes as the tax brackets are not fully adjusted for inflation.

 

[ET180]

isn't inflation closer to 13%

It is, they cheat. The assume substitutions, overvalue technological improvements, and don't even consider housing prices directly. They use owners equivalent rent where they basically just ask people what they think they could rent their property for. It's a joke. Tracking the price of a Big Mac is a better measure of real inflation than the CPI.