OPINION: “Your ability to earn a guaranteed rate of return on risk-free investments, regardless of what happens to inflation, actually went up,” BrettArends writes.
Retirees and those seeking secure income got two items of very good news this week, though you may only have heard about one.
So-called TIPS bonds, Treasury bonds protected against inflation, fell slightly in price this week. And as a result the interest rates available for new buyers went up. Could they be right? President Joe Biden boasted this week that the inflation rate was now down to 0%, on a month-to-month basis, but at the same time he pointed out, on Twitter, that the jobs market is booming and workers have the bargaining power that they haven’t had in decades — meaning their wages are likely to go up.
That includes anyone owning regular or nominal Treasury bonds. If you are a retiree or a low-risk investor, and you own a standard sort of lower-risk or balanced portfolio, that probably includes you.Also: Stock-market euphoria meets bond-market pessimism as ‘strange week’ comes to end I have written here before about so-called break-evens, a technical measure in the bond market that effectively anticipates future inflation. Right now the 5-year break-even is about 2.7%, and the 10-year is about 2.5%. What this means is that anyone owning a 5-year regular Treasury bond, instead of a 5-year TIPS bond, is unwittingly making a bet that inflation over the next five years will average less than 2.7% a year.
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