Anxiously Awaiting the CPI

Well it is about 90 minutes to the release of the latest consumer price index (CPI) and while we all know that the number will be plenty ‘hot’ I am hoping that it will be either at expectations. After the shellacking that income issues took yesterday a breather is in order. The forecast is for a reading of 8.4% year over year–a 40 year high.

Yesterday income issues took a loss of over 1% (on average)–so the average price of a $25/share is at the lowest level since 7/2020 (which was covid related) when it hit $23.66.

With the losses yesterday I took a tiny nibble on the investment grade issue of Equitable Holdings 5.25% perpetual preferred (EQH-A) which is trading now at $21.86 for current yield of 6.04%. Obviously this issue–like other investment grade issues could/will go lower–so the nibble is more of a placeholder position which will be added to in higher quantity in the months ahead.

So hold on it could be a wild interest rate day (Fed official Lael Brainard also speaks mid day today).

34 thoughts on “Anxiously Awaiting the CPI”

  1. Tim—maybe it’s time to set up a separate link for I-bonds. Every article you post, or in the sandbox or sometimes in reader initiated alerts, frequently end up with a half dozen comments on I-bonds. Enough already.

  2. One thing that is rarely mentioned here are Corporate Bonds. The change in prices and yields has been fast and furious (to borrow a line). High quality, non callable Corporates in the 3% to 4% range selling below par are available in such large numbers its almost impossible to make a choice between them.
    Duration is anywhere from 5-15 years and while nothing matches I-Bonds in terms of yield right now, which of course can change anytime based on the rate of inflation, for an income investor I tilt towards corporates rather then having a large exposure to I-Bonds.

  3. “Yesterday income issues took a loss of over 1% (on average)–so the average price of a $25/share is at the lowest level since 7/2020 (which was covid related) when it hit $23.66.”
    SPPREIG (S&P investment grade preferred stock index) is actually lower now than it was on March 31, 2020.

  4. CPI 8.5% !!!!!
    ughh ..

    Thank you sir, may I have another ………………

    Numbers like this have not been seen since 1982- ish.
    So there is an entire generation of people who may not know how to deal with this. Cheap free money for 13 years has consequences. Crazy to think about but I do remember at the time is seemed like a good idea.

    I keep going back to the “Four stage strategy” seen one the old “Mr. Minister” TV show.

    Stage 1: We say nothing is going to happen.
    Stage 2: We say maybe something is going to happen but we will do nothing about it
    Stage 3: We say maybe we should do something but there is nothing we can do.
    Stage 4: We say maybe there was something we could have done but it’s too late now

    1. I cannot even imagine stretching in the last year to buy that expensive large house and convincing yourself that your finances can cover it only to see every cost related to it going up so quickly on top of everything else. So up goes the real estate tax as the town reassesses things, energy costs to heat/cool, water/sewer, and regular maintenance. Then you see your food bill, gasoline, clothing, and everything else go up. A few years go by and that car needs replacing and you are used to 50k vehicles that now cost 63k. On and on.

      Or maybe the average household income is now 150K and I missed that. (I live in Mass so we make more but everything costs more).

      1. Speaking of which, I got my property assessment last week and it was up 85%!

        I would sell it right now if someone offered me that price, but as it is I have an appointment next Monday to go in and argue over it with the assessor since they think more highly of my property than even Zillow does by a large amount.

        TN has a nice law that the county can’t profit from rising property prices so if I can get it down to 40% my tax payment will stay the same.

    2. the CPI is a lagging number, as an example I was paying over $4 for gas just over a week ago, today I paid $3.49. There are other items that are falling, like lumber, which will continue to fall with higher rates and slowing home construction. I personally don’t see this lasting very long. Unfortunately the Fed will still be fighting this belatedly and create the usual recession. I’m investing with the mind that there will be a reversal in rates in a year or so. Could be wrong, have been before, but feel it’s worth the risk.

  5. 2whiteroses, (or anyone)

    Any ideas for US citizens living abroad? We can’t use Treasury Direct.

    Thanks,
    D.

    1. David – We lived in the Caribbean for about 11 years and found it pretty easy to establish a US address which we did for use of US based credit cards and for shipping purposes. I have no idea whether or not that would work when trying to buy IBonds as we didn’t know about them then, but using a mail forwarding service creates a US address for you…. Most of these services create an address that is not a PO Box number, so maybe you could try that if you’re a US citizen. I have no idea what other logistics or legal problems that might create for owning IBonds nor am I recommending doing it, but it is something you might want to look into and ask questions of.. Here’s an example of one but I know nothing about them specifically – https://www.usa2me.com/site/Mail_Forwarding_How_It_Works.aspx

    2. Hi David….I would access their site using a VPN with a US IP address. . I’m assuming you have a US domiciled bank to link your Treasury Direct account to and as already mentioned, a US address/PO Box from a UPS Store for instance, which you can do online….and you can buy anything they offer including I-bonds

  6. https://www.wsj.com/amp/articles/the-safe-investment-that-will-soon-yield-almost-10-11649769505

    The Safe Investment That Will Soon Yield Almost 10%
    The March surge in the consumer-price index is the latest boon to buyers of U.S. savings bonds that are adjusted for inflation, known as I Bonds

    By
    Dion Rabouin
    April 12, 2022 9:18 am ET

    There’s no such thing as a free lunch in finance. Except maybe this: The interest rate on inflation-adjusted U.S. savings bonds will approach 10% beginning in May.

    U.S. Treasury Series I Bonds, or I Bonds, will offer annual interest payments of 9.6%, based on the bond’s latest inflation rate calculation, which is tied to March’s consumer-price index. Prices rose by 8.5% year over year in March, the fastest pace since December 1981, according to the Bureau of Labor Statistics.

    The interest is compounded every six months and reassessed in May and November each year. The bonds haven’t always been hot sellers, but that has changed with the surge in U.S. inflation gauges.

    Over the past six months, nearly $11 billion in I Bonds have been issued, compared with around $1.2 billion during the same period in 2020 and 2021, according to Treasury Department records.

    “That’s been a hot topic,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “The I Bond has been very popular because of the yield. For six months at least, you’ve got a pretty fat yield there.”

    I Bonds are guaranteed by the federal government. The bonds pay a fixed rate that is set by the Treasury, plus an inflation-adjusted rate that is determined by the change in CPI over the past six months. Thanks to the upward trajectory of CPI, I Bonds have become a top yielding U.S. asset, even though they carry virtually no risk of principal loss.

    There’s an investment that’s 100% backed by the U.S. government, never loses its value and is paying more than 7% interest a year. So, why haven’t most Americans heard of Series I Savings Bonds? WSJ’s Dion Rabouin explains. Photo: TNS/Zuma Press

    They also offer tax benefits. Holders can choose to defer declaring I Bond interest until maturity or redemption. That income may be tax-exempt for lower- and middle-income families that use the bond to pay for college tuition.

    For investors seeking a safe and high-yielding investment, there is “nothing nearly as good as the I Bond,” said Joshua Rauh, a senior fellow at Stanford’s Hoover Institution.

    The bonds could pay more if Treasury Secretary Janet Yellen
    chooses to raise the fixed interest rate, which has held at 0% since May 2020.

    Even without a bump from Ms. Yellen, the rate will be more than 150 times the annual interest paid by the average U.S. bank on a savings account and more than triple the current yield on a 30-year U.S. Treasury bond. It’s also almost triple the 3.54% the I Bonds paid just one year ago.

    There are a few strings attached. I Bonds can’t be traded like Treasurys and they are only available through the U.S. Treasury Department’s website, TreasuryDirect.gov. They can’t be redeemed for at least one year and I Bonds redeemed after less than five years will be penalized the last three months of earned interest. There are special provisions for those affected by a disaster.

    Since they aren’t purchased through banks or brokerages and don’t pay commissions or expenses, the assets have drawn limited attention from financial advisers. As of March 31, there was a total of $57.2 billion of I Bonds outstanding, which amounts to less than 0.25% of all U.S. debt held by the public, according to the Treasury Department.

    Mr. Rauh is trying to change that. He wrote a WSJ op-ed in February with Stanford visiting economics fellow and former Federal Reserve Board member
    Kevin Warsh urging the administration to raise the annual cap on I Bonds from $10,000 to $100,000 per person. (The current cap rises to $15,000 for individuals who choose to put $5,000 of their tax return in paper bonds.) Rep. Alex X. Mooney (R., W.Va.) said last month that he was introducing a bill that would ask Treasury to assess the feasibility and impact of raising the I Bond cap.

    I Bonds were introduced in 1998 by former Vice President Al Gore and Treasury Secretary Robert Rubin as a way to help Americans save for investments like college and retirement and to “ensure that those savings will never be undercut by future inflation,” Mr. Gore said at the time.

    Treasury is working on an overhaulf of TreasuryDirect.gov to make it more user friendly, according to a senior spokesman, noting that the department is “currently in the process of developing an updated, modern replacement for the current TreasuryDirect system.”

    Write to Dion Rabouin at dion.rabouin@wsj.com

    1. I Bonds are my current favorite investment. I have purchased $10,000 each for me and my wife for this year. I will also request $5,000 in paper I Bonds when I file my tax return. Also thanks to a tip from Gridbird, I have purchased $10,000 as a gift from me to my wife and $10,000 more as a gift from my wife to me. Both of these purchases are held in the gift box section of our respective Treasury Direct accounts. They will earn the current 7.12% for six months, and then earn the new higher rate for the next six months. The gifts can be released in 2023 to each other if we so choose.

      1. TexPaul–I don’t know if you bought the I-bond gifts in the same year as you made your own full contributions, but according to the Treasury Direct web site, gifts count towards the $10,000 annual limit.

        From Treasury Direct:
        “How much in I bonds can I buy for myself?
        In a calendar year, you can acquire:

        up to $10,000 in electronic I bonds in TreasuryDirect
        up to $5,000 in paper I bonds using your federal income tax refund
        Two points:
        The limits apply separately, meaning you could acquire up to $15,000 in I bonds in a calendar year

        Bonds you buy for yourself and bonds you receive as gifts or via transfers count toward the limit. Two exceptions:
        If a bond is transferred to you due to the death of the original owner, the amount doesn’t count toward your limit
        If you own a paper bond issued before 2008, you can convert it to an electronic bond in your account in TreasuryDirect regardless of the amount of the bond. (The annual limit before 2008 was greater than today’s limit of $10,000.)”

        1. i may be wrong but i don’t think the gift counts until its accepted
          so if you accept next year, it would count toward your 23 number
          but not this year

        2. My understanding is that a gift does not count against the $10,000 limit of an individual until it is received by the individual. In my case, I have directly purchased my $10,000 limit for year 2022. In year 2023, if my wife delivers my gift of $10,000 to me then that will exhaust my $10,000 limit for year 2023 and I will not be able to make any direct purchases for that year. The beauty of buying I Bond gifts now and holding them in your gift box is that they earn the very favorable rate of 7.12% for six months and then the new higher rate for another six months. Gridbird referenced an article by Harry Sit dated December 27, 2021 that was very helpful in understanding the I Bond gift process. The articles name is: Buy I Bonds as a Gift: What Works and What Doesn’t.

          1. Thanks, TexPaul. I see that some of the readers on that site question the interpretation of some wording. Have you held the I-bonds in your respective gift boxes long enough to see any accrued interest?

            1. James this is from Treasury Direct site…. It is pretty clear its ok…Note the last sentence… People start asking reps for info and they dont know the rules themselves.

              Do bonds I’ve bought as gifts through TreasuryDirect but have not yet delivered to the gift recipient apply against my annual limit?

              No. Gift bonds are purchased in the name and SSN of the gift recipient. They do not count against your annual limit even if you have purchased them through your TreasuryDirect account but have not yet delivered them. Gift purchases in TreasuryDirect count toward the annual limit of the recipient in the year they are delivered.

              https://www.treasurydirect.gov/indiv/research/faq/annualpurchaselimitchangeqa.htm#gifts

              1. Grid, from the TD website, it appears you can gift 15K per person, not 10k:

                Can I buy I bonds as gifts for others?

                Yes.

                Electronic bonds: You can buy them as gifts for any TreasuryDirect account holder, including children.

                Paper bonds: You can request bonds in the names of others and then, once the bonds are mailed to you, give the bonds as gifts.
                How much in I bonds can I buy as gifts?

                The purchase amount of a gift bond counts toward the annual limit of the recipient, not the giver. So, in a calendar year, you can buy up to $10,000 in electronic bonds and up to $5,000 in paper bonds for each person you buy for.

                1. Furcal, interesting I didnt know that. But, remember tax gift implications aside, its my understanding you can gift a lot. The key is unwinding it all in a prideful manner. You buy wifey say $50k of electronic gift Ibonds, it is taking you until 2027 before you can unwind them. What if inflation is 0% from 2023 to 2027? You will be stuck holding something trapped in a gift box for years that is netting you zilch.
                  I know some people who have gifted each other 30k taking the risk level out to 2025. Im just going out one year on the gifting myself. I remember a dozen years or so ago, I bought max IBonds and Paper IBonds to capture a brief uptick in yields. But by year 3 I had sold them all as the yields fell below CDs even at that time.

                  1. I have a question. If you put $10,000 in the gift box in 2022 and then deliver it in 2023. Who gets the interest in the 2022 time frame the giver or receiver? If its the receiver does the interest count against their $10,000 MAX?

                    Thanks,
                    Jeff

                    1. JB/AZ. It is a gift so ultimately the interest goes to who you gift it to. Once you deliver the gift, the person has to have a treasury account. Remember the interest is only claimed by the recipient when it is redeemed. Interest is not paid out to a separate account.

                    2. JB/AZ. Didnt see your 2nd question. The 10,000 max is purchase price only limit. If you gift that a few years later… the $10,000 would be the limit for the person. Keep in mind that person cannot purchase any themselves for that year as they would already be at the limit. Hope that makes sense.

                    3. Mr Conservative thank you for your response. So if the gift is let say $10,000 plus $700 interest for a total of $10,700. When I deliver it, does that put the receiver over the $10,000 max for the year,? Or are you saying the interest doesn’t count in the max limit?

                      Thanks again
                      Jeff

                    4. JB, the Bond in the account will always show up as $10,000 (assuming you bought it in one tranche). When you then open it up, it will show its current value. Remember though TD always withholds last 3 months until year 5, so you wont see any interest until the first of the 5th month after purchase. So, no, the interest accrued does not count against the 10k annual limit.

                    5. Thank you both. Seems like it makes sense at this time to do the husband wife gift while the rates are high.

                    6. The reset is in May? Would it be smarter to wait to purchase after the reset?

            2. No. I will not see accrued interest until August by my reckoning. I bought the gift I Bonds recently in April. Since the last three months of interest are forfeited if redeemed within 5 years, it will take until August 1 to be able to see April’s interest. April interest will not show up in July since it would still be forfeited if I were able to redeem in July (however no redemption is possible until the I Bonds have been held 1 year). FYI, when you place an order to buy an I Bond, it is not executed that day, but the following day. If you want to lock in the 7.12% rate for six months, don’t wait until April 30 to place your buy order. I’ve read somewhere that April 27 is the last day to place an order and get the 7.12% I don’t how that date was determined or if it is correct.

    2. 2WR, If history and Treasury has anything to do with this, it aint happening. See most people dont remember but when these were first issued one could buy $30k Ibond annual limit, it quietly got reduced to 10k (Im skipping a few steps for brevity). Treasury said this program was intended for small investors.
      See wealthy people were making these defacto secondary tax break and retirement plans. As they could delay the taxes until retirement then withdraw money in a considerably lower tax bracket at retirement. Plus the state income tax break, and all the other college tuition breaks etc. etc. Remember these were even more beneficial back then because many were being issued with 3% fixed component in addition to the inflation adjustment. It was quite a little tax benefit for wealthy people who could pump the money into them.
      This is why its such a tiny amount now along with the Series EE… In fact many were pumping the 60k per person through both IBond and EE vehicles, as remember back then Series EE paid a considerably higher rate then, also.

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