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Active links at https://discussion.fool.com/t/30-year-tips-has-hig...

The safest investment currently available is the Treasury Inflation Protected Security (TIPS). TIPS may be bought in any quantity (unlike I-Series Savings Bonds which are limited to $10,000 per year).

https://www.investopedia.com/terms/t/tips.asp

There are two risks that are new: the risk that the U.S. will default on interest payment and the risk that the BLS will understate the actual inflation rate under pressure from the executive branch.

Barring these risks, TIPS are an investment for those who want to minimize risk. The TIPS will yield higher than the Treasury of the same maturity if future inflation is higher than the breakeven rate.
fred.stlouisfed.org
Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity, Quoted...

Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity, Quoted on an Investment Basis, Inflation-Indexed
Treasury Inflation-Protected Securities – 21 Aug 25
30-year TIPS reopening gets real yield of 2.650%, highest in nearly 24 years

By David Enna, Tipswatch.com Investors were ready and willing to jump aboard today’s auction of a reopened 30-year Treasury Inflation-Protected Security, CUSIP 912810UH9. And why not? The res…
30-year TIPS reopening gets real yield of 2.650%, highest in nearly 24 years

Posted on August 21, 2025 by Tipswatch

By David Enna, Tipswatch.com

Investors were ready and willing to jump aboard today’s auction of a reopened 30-year Treasury Inflation-Protected Security, CUSIP 912810UH9. And why not? The resulting real yield to maturity of 2.650% was the highest for this term at auction since October 2001.

This TIPS will mature February 15, 2055. It has a coupon rate of 2.375%, which was set by the originating auction on February 20, 2025….
Inflation breakeven rate

The 30-year Treasury bond was trading with a nominal yield of 4.92% at the auction’s close, so this TIPS gets an inflation breakeven rate of 2.27%, in line with recent auction results. This means it will outperform the nominal bond if inflation averages more than 2.27% over the next 29 years, 6 months.

Some perspective: Look at 30-year inflation averages over the last 55 years. Only one 30-year period (ending in 2020) had average inflation of 2.2%. Every other one was higher.
eyebonds.info
TIPS - CPI Table 12

For today’s buyers, I just want to point out that just four years ago this same term and same auction size got a real yield of -0.292%. Today’s result was a whopping 294 basis points higher.….[end quote]

Like all bonds, the yield is based on both the coupon and the price paid for the bond. TIPS can be bought from Treasury Direct but it’s more convenient to buy on the secondary market from Fidelity since there is a wider choice of maturities.

The financial press writes a lot about the fed funds rate so investors pay a lot of attention to it. But the fed funds rate is an overnight rate. The bond market sets the longer-term bond rates by auction. Demand was strong for this 30 year TIPS so the high yield isn’t due to lack of bids. The bond market is demanding a higher real yield now.

What does this say about the long-term prospects for the economy and the federal deficit?

I didn’t buy this bond because I don’t expect to be alive in 30 years. The bond can be sold on the secondary market but I generally hold bonds to maturity.

The longer the duration of the bond the more the bond’s price will swing if sold before maturity. A general rule of thumb, based on the concept of duration, is that for every 1% increase in interest rates, a bond’s price will fall by a percentage roughly equal to its duration. Since a 30-year bond typically has a duration close to 15-20 years (depending on its coupon rate), its value would likely drop by about 15% to 20% if interest rates rise by 1%. Conversely, the value of the bond will rise if interest rates fall. The TIPS I bought in October 2008 (which yielded 3% based on the depressed crisis price) rose sharply in value once the crisis was over.

This is the longest bond I own. Will I make it to 2041? Time will tell.
fred.stlouisfed.org
30-Year 2-1/8% Treasury Inflation-Indexed Bond, Due 2/15/2041


Wendy

I have great respect for Wendy's ability to call TIPs at the top. That said, I just got off the phone with Wendy where we had a chat about the tax ramifications of the "phantom income" as the bonds continue to acquire value at the rate of inflation. Speak to an accountant before you arbitrarily buy these for their income as (based on our interpretation), if inflation rises the way it did during the 1980's, while the capital value of the bonds will compound quickly, the tax on the phantom income (if you are in a high tax bracket) could exceed the income generated by the bond (for a negative cash flow).

I asked Wendy if the percentage yield above inflation during the 1980's was higher than it is now (to compensate for the higher taxes) and she doesn't remember either - though it may not be the same taxation rate for institutional investors anyway.

It just goes to show that there is no free lunch, but sometimes it's still worth it to eat.

Jeff

I don't have any experience with selling bonds before they reach their maturity date.
A quick Google search says that TIPS can be sold before their maturity date, while I-Bonds
cannot.

With any other type of bond, if rates go down, then the bond goes up in price.
Does the same thing happen with TIPS, since it's payout is part fixed and part inflation
adjusted ? Google says the price will go up. I'm thinking since the inflation adjustment
would decrease, then TIPS would not go up in price as much as a fixed rate bond, during
rate cuts. But TIPS still have that edge over I-Bonds.

The Big Kahuna In Charge of Things really wants a rate cut, and word is that he has personally
bought over $100 Million in bonds since taking office in January. Might be worth putting
some money into bonds between now and Powell's end of term as head of FED. Trump is sure
to get a lackey installed.

word is that he has personally
bought over $100 Million in bonds since taking office in January. Might be worth putting
some money into bonds between now and Powell's end of term as head of FED.

I skimmed that article, but it didn't seem to be US Bonds he was buying, rather corporate bonds. Given the high level of interference the gov't now has on individual companies, he no doubt has plans for those companies. Bond is a pretty broad term, and not just referring to US Gov't bonds.

IP

Jeff, in response to yesterday's conversation I set up a spreadsheet showing the effects of the coupon yield and inflation on taxable income.

TIPS are adjusted for inflation. The principal of the bond is multiplied by the inflation rate. This adjustment is then added to the principal. The adjustment is taxable each year even though it is not added to cash flow. (It's similar to the interest from a CD which is taxed every year even though you don't get it until the CD matures.) This is sometimes called "phantom income" because it's taxable but not added to cash flow.

The interest income is the coupon rate multiplied by the principal. Since the principal grows at the rate of inflation the coupon interest grows every year even though the coupon percent stays the same.

If the coupon rate is low and inflation is high the phantom income can be higher than the coupon interest income. The worst situation is a low coupon rate and a high inflation rate. "Total" includes the growing principal and taxable income minus tax.

Year	Principal	Coupon	Inflation	Coupon income	Phantom Income	Taxable Income	Tax rate	Tax	Cash flow	Total
1	$1,000.00	0.625%	2.00%	        $6.25	        $20.00	        $26.25	        25%	        $6.56	-$0.31	        $1,019.69
2	$1,020.00	0.625%	2.00%	        $6.38	        $20.40	        $26.78	        25%	        $6.69	-$0.32	        $1,040.08
3	$1,040.40	0.625%	2.00%	        $6.50	        $20.81	        $27.31	        25%	        $6.83	-$0.33	        $1,060.88
										
										
Year	Principal	Coupon	Inflation	Coupon income	Phantom Income	Taxable Income	Tax rate	Tax	Cash flow	Total
1	$1,000.00	0.625%	10.00%	        $6.25	        $100.00	        $106.25	        25%	       $26.56	-$20.31	        $1,079.69
2	$1,100.00	0.625%	10.00%	        $6.88	        $110.00	        $116.88	        25%	       $29.22	-$22.34	        $1,187.66
3	$1,210.00	0.625%	10.00%	        $7.56	        $121.00	        $128.56	        25%	       $32.14	-$24.58	        $1,306.42
										
Year	Principal	Coupon	Inflation	Coupon income	Phantom Income	Taxable Income	Tax rate	Tax	Cash flow	Total
1	1000	        2.650%	2.00%	        $26.50	        $20.00	        $46.50	        25%	        $11.63	$14.88	        $1,034.88
2	1020	        2.650%	2.00%	        $27.03	        $20.40	        $47.43	        25%	        $11.86	$15.17	        $1,055.57
3	1040.4	        2.650%	2.00%	        $27.57	        $20.81	        $48.38	        25%	        $12.09	$15.48	        $1,076.68
										
										
Year	Principal	Coupon	Inflation	Coupon income	Phantom Income	Taxable Income	Tax rate	Tax	Cash flow	Total
1	1000	        2.650%	10.00%	        $26.50	        $100.00	        $126.50	        25%	        $31.63	-$5.13	       $1,094.88
2	1100	        2.650%	10.00%	        $29.15	        $110.00	        $139.15	        25%	        $34.79	-$5.64	       $1,204.36
3	1210	        2.650%	10.00%	        $32.07	        $121.00	        $153.07	        25%	        $38.27	-$6.20	       $1,324.80

Like any other bond, a TIPS may be held to maturity to receive the full (inflated) principal. Or it may be sold on the secondary market before maturity. If prevailing interest rates fall the TIPS will sell for more. If prevailing interest rates rise the TIPS will sell for less. The longer the duration the larger the swing.

Generally, the Federal Reserve controls only the overnight fed funds rate and not the long-term yields which are set by the bond market. However, the Fed can and has bought massive amounts of long-term Treasuries, mortgage bonds and even corporate bonds in the past and they could again.

https://fred.stlouisfed.org/series/WALCL

This chart shows QE during the 2008 financial crisis and the Covid crisis. But there was also a significant amount of buying in 2012 - 2014 (QE3) to stimulate the economy which was still slow during the "Great Recession." This shows that the Fed might be influenced to suppress long-term interest rates in case of recession -- or even if the White House declares a bogus "emergency" as Trump has done several times already.

On the other hand, inflation is a real threat due to massive government deficits coupled with removal of a significant part of the work force. The bond market will continue to raise long-term yields as long as this threat persists. That would depress the value of all existing bonds, including TIPS.

Wendy

A quick Google search says that TIPS can be sold before their maturity date, while I-Bonds
cannot.

That is not correct. You cannot sell them within the first year, true, but you can sell them at any time after that. If you do so within a 5 year window you lose the previous 3 months of interest, which is a not-very-high penalty if you really want to get out.

After 5 years of ownership you can sell them at any time without penalty.

"That is not correct. You cannot sell them within the first year, true, but you can sell them at any time after that. If you do so within a 5 year window you lose the previous 3 months of interest, which is a not-very-high penalty if you really want to get out."

You are correct. Heck, a few years back, I personally sold an I-Bond before it's maturity date,lol, totally slipped my mind. So that google search I used gave a wrong answer, thanks
for pointing that out to me.

< You cannot sell I-Bonds within the first year, true, but you can sell them at any time after that. If you do so within a 5 year window you lose the previous 3 months of interest, which is a not-very-high penalty if you really want to get out.

After 5 years of ownership you can sell them at any time without penalty. >

This is incorrect.

An I-series savings bond cannot be sold in the secondary market. I-bonds are "non-marketable" securities, meaning they cannot be bought or sold to another person. I-Bonds can be redeemed or "cashed in" with a bank or the U.S. Treasury. The statement above would be correct if it said "cashed in" instead of "sold."

Differences between I-Bonds and TIPS

1. As stated above, I-Bonds are "non-marketable" while TIPS have a large, active secondary market.

2. I-Bonds are limited to $10,000 per year while TIPS may be bought in any amount above 1 bond ($1,000).

3. In the event of deflation the TIPS principal will decline while the I-Bond principal never declines.

4. I-Bonds are always cashed in at par value, regardless of prevailing interest rates, even if they are cashed in before maturity. TIPS value may decline if sold before maturity.

5. TIPS interest and "phantom interest" are always taxed in the year incurred while I-Bond interest may be deferred until maturity (at which time it would be taxed as a lump sum). However, the I-Bond owner may choose to begin paying taxes on interest before maturity to avoid the lump sum.

6. I-Bonds' interest changes with inflation but the par value of the bond stays the same. TIPS interest stays the same (coupon) but the principal changes with inflation.
Wendy

Wendy, I know you were replying to Goofy, but that is exactly what happened when I sold my I-bond(s?) early, I just redeemed/cashed them in, did not sell on a secondary market, just sold
them back to the Government.

I made decent risk free money on them, thanks to you alerting everybody on TMF that the yield was attractive. I don't comment a lot, but I read most all of your posts, even though we have very different risk tolerances. But room in the world for both views, especially as I age. But I can only wrap my head around owning long duration bonds if there is a chance for capital gains. I see and feel inflation in our future.

This is incorrect.

An I-series savings bond cannot be sold in the secondary market. I-bonds are "non-marketable" securities, meaning they cannot be bought or sold to another person. I-Bonds can be redeemed or "cashed in" with a bank or the U.S. Treasury. The statement above would be correct if it said "cashed in" instead of "sold."

I wish there was an icon I could use of me with my thumb on my nose, waving my fingers, and giving you the raspberry.

Said in only the fondest way possible, of course.

Here is a neat TIPS calculator to create a TIPS bond ladder:

https://www.tipsladder.com/generate

I asked Wendy if the percentage yield above inflation during the 1980's was higher than it is now (to compensate for the higher taxes) and she doesn't remember either - though it may not be the same taxation rate for institutional investors anyway.

Apparently the first TIPS were issued in 1997.

https://www.treasurydirect.gov/research-center/tim...

It's similar to the interest from a CD which is taxed every year even though you don't get it until the CD matures.

I think most longer term CDs distribute interest monthly, quarterly, or annually. Only shorter term CDs pay the entire interest at maturity.

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