Government committee recommends death to 5-year TIPS
Thursday, September 11th, 2008
Categorized as: TIPS
The Treasury Borrowing Advisory committee has recommended that the Treasury stop issuing 5-year TIPS, according to a recent article on Bloomberg. The group says TIPS have cost the government an extra $30 billion in interest because they pay more than traditional government securities.
On the other hand, a TIPS defender "estimates that TIPS have saved the U.S. $275 billion since 1997 by lowering yields on regular Treasuries by 0.25 percentage point to 0.5 percentage point."
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Well, most of that interest is from the 3.5%+ real rate TIPS that were offered in the early years, and the government is already stuck with that debt.
I can't imagine it would be a good idea to stop offering new TIPS now. I believe I saw the current real rate listed as "better than nothing, almost a pittance."
I'd think TIPS would actually be cheaper for the government than nominal bonds, as investors are willing to pay a premium for the inflation protection above just the expected inflation.
Well, a mere three weeks later I must retract that statement. TIPS yields are now around 2.5% to 3% again.
I don't know whether to buy TIPS now or wait and see if the Nov 1 I-bond rate grows as well.
Dan - I noticed the TIPS rate explode last week as well. But who knows what the Treasury will do. They've been a bit erratic lately.
Tom Adams