4 ms·

Have US Treasuries ever paid more than inflation? Isn't that relationship basically stable -- meaning, when we had higher interest rates, we had higher inflatio

by loumf 12y ago

Have US Treasuries ever paid more than inflation? Isn't that relationship basically stable -- meaning, when we had higher interest rates, we had higher inflation as well.

ChuckMcM 12y ago
Historically yes, if you take into account that they are tax free their net return has been positive. Between changes in definitions of the CPI and the QE{n} programs however they have gone negative over the last 5 years. I expect that story to "hit" right around the time when the presidential race gets going in earnest, so later next year.
- 7Figures2Commas 12y ago
  You seem to be confused: 1. US Treasury bills and bonds are not exempt from Federal taxation. 2. In your original comment, you referred to "20 year t-bills." There is no such thing. The longest dated Treasury bill is 52 weeks; they are most frequently issued with maturities of a year or less. You are confusing Treasury bills and Treasury bonds, which are not the same thing. 3. T-bills are short-term investments purchased for the security they offer; nobody buys them to beat inflation. Historically, they have never provided a real return significantly above that of inflation[1]. 4. That the yields of 10 year Treasury bonds are not keeping up with inflation is not a news story. It's been talked about widely for years[2]. [1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... [2] http://www.bloomberg.com/news/2012-12-14/treasury-yields-below-inflation-may-last-years-chart-of-the-day.html http://www.bloomberg.com/news/2012-12-14/treasury-yields-bel...
  - ChuckMcM 12y ago
    You are correct, took me a bit to look it up by my tax exempt bond holdings are municipals not treasury bonds (well except for some series EE but that hardly counts).
    - loumf 12y ago
      I understood you to mean that seniors don't pay taxes on it, which in my parents and in-laws case is true (since they don't go over income thresholds to pay income tax). For seniors that are most affected by this (the ones with lower incomes), they probably don't pay tax.
- loumf 12y ago
  The CPI definitions change to reflect consumption habits. In any case, CPI definition changes don't affect your perceived inflation or effective return -- it's just trying to measure what you might be feeling. CPI affects Social Security payouts, that's a different thing than investment returns (but obviously does affect the well-being of seniors). CPI probably does understate perceived inflation for seniors. There is an index specifically for seniors (CPI-E) that has more healthcare in the basket of goods, and it's higher.

by loumf 12y ago

Have US Treasuries ever paid more than inflation? Isn't that relationship basically stable -- meaning, when we had higher interest rates, we had higher inflation as well.

ChuckMcM 12y ago

Historically yes, if you take into account that they are tax free their net return has been positive. Between changes in definitions of the CPI and the QE{n} programs however they have gone negative over the last 5 years. I expect that story to "hit" right around the time when the presidential race gets going in earnest, so later next year.

7Figures2Commas 12y ago
You seem to be confused: 1. US Treasury bills and bonds are not exempt from Federal taxation. 2. In your original comment, you referred to "20 year t-bills." There is no such thing. The longest dated Treasury bill is 52 weeks; they are most frequently issued with maturities of a year or less. You are confusing Treasury bills and Treasury bonds, which are not the same thing. 3. T-bills are short-term investments purchased for the security they offer; nobody buys them to beat inflation. Historically, they have never provided a real return significantly above that of inflation[1]. 4. That the yields of 10 year Treasury bonds are not keeping up with inflation is not a news story. It's been talked about widely for years[2]. [1] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... [2] http://www.bloomberg.com/news/2012-12-14/treasury-yields-below-inflation-may-last-years-chart-of-the-day.html http://www.bloomberg.com/news/2012-12-14/treasury-yields-bel...
- ChuckMcM 12y ago
  You are correct, took me a bit to look it up by my tax exempt bond holdings are municipals not treasury bonds (well except for some series EE but that hardly counts).
  - loumf 12y ago
    I understood you to mean that seniors don't pay taxes on it, which in my parents and in-laws case is true (since they don't go over income thresholds to pay income tax). For seniors that are most affected by this (the ones with lower incomes), they probably don't pay tax.
loumf 12y ago
The CPI definitions change to reflect consumption habits. In any case, CPI definition changes don't affect your perceived inflation or effective return -- it's just trying to measure what you might be feeling. CPI affects Social Security payouts, that's a different thing than investment returns (but obviously does affect the well-being of seniors). CPI probably does understate perceived inflation for seniors. There is an index specifically for seniors (CPI-E) that has more healthcare in the basket of goods, and it's higher.