Do T-Bills Keep Up with Inflation?

Discussion of the Cash portion of the Permanent Portfolio

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dualstow
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Do T-Bills Keep Up with Inflation?

Post by dualstow » Sun Feb 02, 2020 10:35 am

Recently I checked on the inflation rate for the first time in a long time: 2.3%, higher than I'd imagined. I was only paying attention to interest rates for the past few years.

I'm pretty sure MachineGhost once said something about t-bills keeping up with inflation. He may not have. Let's say one-year bills. Not TIPS, but ordinary T-Bills.

Have they generally kept up? If yes, do you think they will continue to do so?
forcemeat, ie stuffing, is etymologically related to ‘farce’. When you say something is a farce, a joke, you’re saying something is a bunch of stuffing.
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Re: Do T-Bills Keep Up with Inflation?

Post by sophie » Sun Feb 02, 2020 10:49 am

If you want to dive into the Fred database, you could plot 1 year T bill rates vs CPI to answer that question. Fortunately, somebody on the bogleheads forum did this already:

https://www.bogleheads.org/forum/viewtopic.php?t=104565

I would guess that in the short term, T bills very roughly track inflation, and that they will be more or less equal over time.
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Re: Do T-Bills Keep Up with Inflation?

Post by dualstow » Sun Feb 02, 2020 10:55 am

Thank you, Sophie
forcemeat, ie stuffing, is etymologically related to ‘farce’. When you say something is a farce, a joke, you’re saying something is a bunch of stuffing.
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Re: Do T-Bills Keep Up with Inflation?

Post by vnatale » Sun Feb 02, 2020 11:55 am

dualstow wrote:
Sun Feb 02, 2020 10:35 am
Recently I checked on the inflation rate for the first time in a long time: 2.3%, higher than I'd imagined. I was only paying attention to interest rates for the past few years.

I'm pretty sure MachineGhost once said something about t-bills keeping up with inflation. He may not have. Let's say one-year bills. Not TIPS, but ordinary T-Bills.

Have they generally kept up? If yes, do you think they will continue to do so?
Could you provide the URL for the source for that inflation rate? And for what time period (month, year). Basically just trying to see what you are considering the definitive source for inflation. Years ago I had to make a choice so as to charge a tenant annual increases / decreases based upon inflation (or deflation).

Thanks

Vinny
Last edited by vnatale on Sun Feb 02, 2020 12:38 pm, edited 1 time in total.
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dualstow
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Re: Do T-Bills Keep Up with Inflation?

Post by dualstow » Sun Feb 02, 2020 12:07 pm

It’s like the 2nd or third hit that will come up on google. Inflation calculator or something.
forcemeat, ie stuffing, is etymologically related to ‘farce’. When you say something is a farce, a joke, you’re saying something is a bunch of stuffing.
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Re: Do T-Bills Keep Up with Inflation?

Post by jhogue » Sun Feb 02, 2020 1:28 pm

T-bills will keep up with inflation over the longer term, but it helps to shorten the maturity if the interest rate is starting to climb rapidly-- like right now. Also not helpful to get stuck at the front end of an inverted yield curve-- as in the last year.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Do T-Bills Keep Up with Inflation?

Post by dualstow » Sun Feb 02, 2020 2:35 pm

I feel comfortable with T-bills. I don’t know if I’m being practical (re: expectations) or just complacent and lazy.
forcemeat, ie stuffing, is etymologically related to ‘farce’. When you say something is a farce, a joke, you’re saying something is a bunch of stuffing.
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Re: Do T-Bills Keep Up with Inflation?

Post by boglerdude » Sun Feb 02, 2020 9:44 pm

No. Financial repression. Which might be good for you as the PP seems underprotected against rising rates.
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Re: Do T-Bills Keep Up with Inflation?

Post by dualstow » Sun Feb 02, 2020 10:08 pm

jhogue wrote:
Sun Feb 02, 2020 1:28 pm
..., but it helps to shorten the maturity if the interest rate is starting to climb rapidly-- like right now.
??? Maybe it’s poised to rise but it has yet to actually climb, right?
I guess the 1-month has. Hadn’t looked at that before.
forcemeat, ie stuffing, is etymologically related to ‘farce’. When you say something is a farce, a joke, you’re saying something is a bunch of stuffing.
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Re: Do T-Bills Keep Up with Inflation?

Post by jalanlong » Mon Feb 03, 2020 2:25 pm

jhogue wrote:
Sun Feb 02, 2020 1:28 pm
T-bills will keep up with inflation over the longer term, but it helps to shorten the maturity if the interest rate is starting to climb rapidly-- like right now. Also not helpful to get stuck at the front end of an inverted yield curve-- as in the last year.
What is the longer term? I am pretty sure by any measure Tbills have not kept up with inflation at all in the last 10 years. From 2009-early 2017 the 1 year Tbill rate never went over 1%. However inflation was over 1% of all but one of those years. And it was as high as 3.1% in 2011. And unlike in stocks, if you fall behind inflation (if only by a few % points) it is almost impossible to catch up with a breakout year in Treasury Bills.
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Re: Do T-Bills Keep Up with Inflation?

Post by jhogue » Mon Feb 03, 2020 3:01 pm

Did you see the charts from bogleheads that sophie referenced earlier in this thread? #Cruncher’s first chart showed that T-bills kept up with inflation (but not inflation and taxes) in rough fashion over the ten year test period of 1970-1981.

More to the point, I did not say—or mean to imply-- T-bills could replace the other assets of a well-balanced HBPP.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Do T-Bills Keep Up with Inflation?

Post by Tyler » Mon Feb 03, 2020 3:06 pm

dualstow wrote:
Sun Feb 02, 2020 10:35 am
Have they generally kept up? If yes, do you think they will continue to do so?
T-bills don't always outpace inflation, but for the most part they manage it quite well. And it's true in lots of different currencies. Check out the charts here: https://portfoliocharts.com/2017/05/12/ ... -investor/

That said, it's true that we're in a period when T-bills are struggling to keep up. How long that will last is anyone's guess, but my long-term bet is on T-bills continuing to act like monetary buoys that keep your purchasing power afloat.
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