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I own Treasury Inflation Protected Securities (TIPS), a small amount of I Bonds and my wife and I are both receiving social security benefits so I have a lot of interest in what the federal government will do as far publishing the appropriate indexes that determines the upcoming inflation adjustment for TIPS, I Bonds and our social security benefit given the 10/01/2025 shutdown.
Looking around on the internet I came across this 10/15/2013 Boglehead’s article.
In the article there is a link to the federal register on the topic which Appendix C, 1 includes the following –
c) If, while an inflation-indexed savings bonds is outstanding, the applicable CPI-U is discontinued or, in the judgment of the Secretary, fundamentally altered in a manner materially adverse to the interests of an investor in the security, or, in the judgment of the Secretary, altered by legislation or Executive Order in a manner materially adverse to the interests of an investor in the security, Treasury, after consulting with the Bureau of Labor Statistics or any successor agency, will substitute an appropriate alternative index. Treasury will then notify the public of the substitute index and how it will be applied. The Secretary’s determinations in this regard will be final.
The conclusion of the Boglehead’s 2013 article was “In other words, they get to make one up. This sentence may mean that they extrapolate, but “based on” could mean many things.”
From what I have read if our 2025 shutdown lasts for an extended period then the unavailable indexes will be determined by the using the provisions of this section of the Code of Federal Regulations to determine an appropriate alternative index. I hope that any such alternative index, if one is necessary, will reflect a good faith estimate of the actual inflation.
I’m obviously an outsider. But maybe a perspective removed from the event may be useful?
Wouldn’t your Treasury have strong incentives to maintain credibility? TIPS and I Bonds, I presume, only exist because your government wants to offer inflation-protected securities? If they manipulated the replacement index in a way that disadvantaged bondholders, wouldn’t it undermine the entire purpose of these savings vehicles? I guess this would make any new bonds and TIPS more expensive for the treasury because investors would want better rates for the possibility of manipulation risk
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Thanks for your comment Mark. I agree that any manipulated alternative index would undermine the US government’s stated purpose to offer inflation -protected debt securities.
I view such alternative indexes as increasing uncertainty which would increase risk and it seems to me would increase, in at least the short term, the cost to the government of issuing such new debt and also decrease the value of such already issued bonds. As I plan to hold my TIPS to maturity I hope I will not suffer a future loss from my maturing TIPS.
If the inflation index for social security benefits was intentionally understated I expect the lower cost to the government would be to the as scheduled social security benefits and such reduction would be born by the beneficiaries.
Time will tell.
Best,
Bill