Inflation-Protected Bonds

Investment Analysis Clubs Macro Economic Trends and Risks
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I’m not the only person who likes the security of inflation-protected bonds. There are some resources that help TIPS and I-Bond investors calculate the value of their holdings.

https://www.wsj.com/finance/investing/inflation-tips-on-how-to-buy-tips-632c8462?mod=hp_lead_pos11

Inflation Isn’t Going Away? Some Tips on How to Buy TIPS

Inflation-protected securities are offering close to their best yields in more than a decade. Buying them has never been easier.

By Jason Zweig, The Wall Street Journal, Feb. 14, 2025

…
However, if you hold TIPS to maturity, you can be sure that the purchasing power of their interest payments, plus the principal amount you’ll get back, will keep pace with inflation. You’ll know exactly how much cash, in constant dollars, the TIPS will generate along the way.

That’s the main reason to buy directly rather than through a mutual fund or ETF. Although funds are more convenient, in most cases their holdings are dynamic, so their future cash flows aren’t precisely knowable…

I think the best solution is to build a TIPS ladder in your retirement account. Each rung consists of a block of TIPS maturing in a successive year. As each block matures, you can use it to buy TIPS that pay off farther in the future—or to fund your living expenses in retirement…

TIPSLadder.com is a free website run by Kevin Esler, a retired software engineer. Esler says he intends to keep it free…

At TIPSLadder.com, I downloaded a spreadsheet that told me how many TIPS I needed for each year—including each issue’s Cusip, or unique identifier, so I wouldn’t buy the wrong one by mistake.

The site also told me the average annual, inflation-adjusted cash flow my ladder will produce through 2055… [end quote]

I buy TIPS on the secondary market through Fidelity (fee $1 per $1,000 bond). I also bought some from the latest 10 year TIPS auction by placing and order 3 days before the auction at Fidelity – no charge for that.

More about TIPS and I-Bonds at https://tipswatch.com/.

Here is a spreadsheet that shows the value of I-Bonds from their first issue in September 1998 to the present. Valuable for calculating interest for paying tax. Although I-Bond interest (unlike TIPS interest) can be deferred until maturity this can be a problem because interest can build up over 30 years and receiving a lump sum can cause a high tax. IRS Pub. 505 allows a change from deferral to annual payment (called Method 1 to Method 2).

Wendy

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Do we have confidence the DOL will report inflation data accurately going forward? For example, we know that CDC is already suppressing avian flu information.

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@syke6 wrote, " Do we have confidence the DOL will report inflation data accurately going forward? For example, we know that CDC is already suppressing avian flu information."

I am very concerned about this. I think it’s a real possibility. After all, the way that CPI was calculated was already changed in the late 1990s when so-called “hedonic adjustments” were used by the BLS to suppress inflation.

https://www.bls.gov/cpi/white-papers/hedonic-quality-adjustments-statistical-agency-perspective.pdf

The Shadow Government Statistics has been following this suppression for many years.

https://www.shadowstats.com/alternate_data/inflation-charts

It wouldn’t be hard to do something like this again. I wonder how many BLS officials lost their job by objecting too hard to hedonic adjustments during the Clinton administration. We know that DOGE wouldn’t hesitate for a second to do this now.

Wendy

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