TIPS rates plunge
Wednesday, November 28th, 2007
Categorized as: TIPS
The interest rate on TIPS, which is equivalent to the fixed base-rate on Series I Savings Bonds, has plunged in November as investors have moved their money into safer investments. The flight to safety has actually driven 5-year TIPS rates below the 1.20% fixed base rate on I bonds. On Monday the 5-year rate was 0.98%; yesterday it recovered to 1.11%. You can follow daily TIPS rates on the Treasury’s web site.
As recently as July 20 the rate on 5-year and 10-year TIPS was exactly the same, 2.64%. Now the spread between the two is about 50 basis points, as the 5-year rates have fallen much faster than the 10-year rates. You can see a graph of the changes on our page about I bond fixed base rates.
The Treasury would like the I bond rate to be about 100 basis points below the 10-year TIPS rate, but since the rate announcement in November the spread has declined to about 25 basis points.