Treasury Notes Return vs Actual TIPS Return

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Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I was curious how the yield-to-maturity on non-inflation-protected Treasuries has compared to comparable TIPS. Seven TIPS have so far matured: five 10-year and two 5-year. I looked up the actual return after inflation adjustment for the seven TIPS. I then looked up the yields for the seven nominal Treasury notes with the closest maturity and issue dates I could find. The following chart shows my results:

Code: Select all

10-Year TIPS					
    Coupon   Matures       Issued         YTM (1)
	 3.375 	Jan-15-2007	Feb-06-1997	 5.906 	
	 3.625 	Jan-15-2008	Jan-15-1998	 6.364 	
	 3.875 	Jan-15-2009	Jan-15-1999	 6.660 	
	 4.250 	Jan-15-2010	Jan-18-2000	 6.956 	
	 3.500 	Jan-15-2011	Jan-16-2001	 5.895 (2) 	
10-Year Nominal					
    Coupon   Matures       Issued         YTM       vs TIPS
	 6.250 	Feb-15-2007	Feb-18-1997	 6.374 	  0.468 
	 5.500 	Feb-15-2008	Feb-17-1998	 5.558 	 (0.806)
	 4.750 	Nov-15-2008	Feb-16-1999	 4.913 	 (1.747)
	 6.500 	Feb-15-2010	Feb-15-2000	 6.540 	 (0.416)
	 5.000 	Feb-15-2011	Feb-15-2001	 5.067 	 (0.828)

5-Year TIPS					
    Coupon   Matures       Issued         YTM (1)
	 3.625 	Jul-15-2002	Jul-15-1997	 6.103 	
	 0.875 	Apr-15-2010	Apr-29-2005	 3.714 (3)
5-Year Nominal					
    Coupon   Matures       Issued         YTM       vs TIPS
	 6.000 	Jul-31-2002	Jul-31-1997	 6.024 	 (0.079)
	 4.000 	Apr-15-2010	Apr-15-2005	 4.046 	  0.332
(1) TIPS yields are after inflation adjustment.
(2) The Jan 15 2011 hasn't matured yet but, with the release of the November CPI, we know its redemption price.
(3) I chose a re-issue of the Apr 15 2010 since it has nearer a 5-year term than the original issue.

In two of the seven cases, nominal treasuries did somewhat better than the comparable period TIPS. But in the other five cases they did worse. The worse case was the 4 3/4% 10-year notes of Nov 2008 which returned about 1.7% less per year than the 3 7/8% 10-year TIPS of Jan 2009.

Others have likely done similar comparisons. I'd be interested in links to them -- so I can check that haven't messed up the figures.:)

Source for TIPS info: http://eyebonds.info/tips/auctlist_mat.html
Source for nominal info: http://www.treasurydirect.gov/RI/OFAuct ... =histQuery

Edit 07/04/12: Fixed URL to point to new eyebonds.info domain
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

A better comparison can be made than I did in the first post of this thread. There I compared each TIPS issued to a nominal Treasury bond of the same maturity issued at about the same date. But I think it would be better to compare each TIPS auction to the yield on a comparable maturity nominal bond on the same date. Here is such a comparison, separated between 5-year and 10-year TIPS.

Matured 5-year TIPS auctioned 7/9/1997 to 10/27/2008:

Code: Select all

TIPS       TIPS        TIPS    TIPS Real  TIPS Actual    Actual    Nominal   Breakeven    Breakeven 
Coupon   Matures     Auction	  Yield       Yield      CPI Chg     Yield     CPI Chg    less Actual
------   -------     -------     -----       -----      -------     -----     -------    -----------
3.625    Jul-02      07/09/97     3.74        6.10        2.36       6.15       2.41         0.05
3.625    Jul-02      10/08/97     3.60        6.02        2.42       5.96       2.36        (0.06)
0.875    Apr-10      10/26/04     0.95        3.45        2.50       3.26       2.31        (0.19)
0.875    Apr-10      04/26/05     1.20        3.71        2.51       3.96       2.76         0.25
0.875    Apr-10      10/25/05     1.74        4.00        2.26       4.41       2.67         0.41
2.375    Apr-11      04/25/06     2.38        4.57        2.19       4.98       2.60         0.42
2.375    Apr-11      10/23/06     2.69        4.51        1.82       4.80       2.11         0.29
2.000    Apr-12      04/24/07     2.11        4.38        2.27       4.51       2.40         0.13
2.000    Apr-12      10/23/07     1.95        3.97        2.01       4.06       2.11         0.09
0.625    Apr-13      04/22/08     0.75        2.53        1.79       2.96       2.22         0.43
0.625    Apr-13      10/27/08     3.27        4.48        1.21       2.67      (0.60)       (1.81)
------   -------     -------     -----       -----      -------     -----     -------    -----------
Average ex 10/27/08               2.11        4.33        2.21       4.51       2.39         0.18
Matured 10-year TIPS auctioned 1/29/1997 to 1/8/2003:

Code: Select all

TIPS       TIPS        TIPS    TIPS Real  TIPS Actual    Actual    Nominal   Breakeven    Breakeven 
Coupon   Matures     Auction	  Yield       Yield      CPI Chg     Yield     CPI Chg    less Actual
------   -------     -------     -----       -----      -------     -----     -------    -----------
3.375    Jan-07     01/29/97      3.45        5.91        2.46       6.63       3.18         0.73
3.375    Jan-07     04/08/97      3.65        6.11        2.46       6.91       3.26         0.80
3.625    Jan-08     01/08/98      3.73        6.36        2.63       5.49       1.76        (0.87)
3.625    Jan-08     10/07/98      3.65        6.40        2.75       4.34       0.69        (2.06)
3.875    Jan-09     01/06/99      3.90        6.66        2.76       4.73       0.83        (1.93)
3.875    Jan-09     07/07/99      4.04        6.81        2.77       5.92       1.88        (0.89)
4.250    Jan-10     01/12/00      4.34        6.96        2.62       6.72       2.38        (0.24)
4.250    Jan-10     07/12/00      4.03        6.58        2.55       6.09       2.06        (0.49)
3.500    Jan-11     01/10/01      3.52        5.90        2.37       5.10       1.58        (0.80)
3.500    Jan-11     07/11/01      3.50        5.79        2.29       5.31       1.81        (0.48)
3.375    Jan-12     01/09/02      3.48        5.99        2.51       5.10       1.62        (0.89)
3.000    Jul-12     07/10/02      3.10        5.63        2.53       4.66       1.56        (0.97)
3.000    Jul-12     10/09/02      2.26        4.81        2.55       3.61       1.35        (1.20)
3.000    Jul-12     01/08/03      2.34        4.91        2.57       4.00       1.66        (0.91)
------   -------     -------     -----       -----      -------     -----     -------    -----------
Average                           3.50        6.06        2.56       5.33       1.83        (0.73)
Rather than just showing the difference between the TIPS and nominal yields, I'm showing the difference between the "break-even" CPI Change and the "actual" CPI Change which amounts to the same thing. The "break-even" CPI Change is the nominal yield less the TIPS real yield; i.e., what the CPI would have to change for the TIPS and the nominal to yield the same. The "actual" CPI Change is the actual TIPS yield including the inflation adjustment less the real yield.

For the ten auctions of 5-year TIPS (excluding the anomalous one in October 2008), one would have done slightly better on average to have purchased nominal 5-year Treasuries on the same date as the auction. On average the "break-even" inflation rate was 0.18% more than what inflation actually turned out to be. However, it was a different story for the 14 auctions of 10-year TIPS. On average the "break-even" inflation rate was 0.73% less than what inflation actually ran. The different results for 5 and 10 year TIPS is probably related to when they were issued and not to their maturity.

Edit 7/17/2013 Adding:
10-year TIPS matured 7/15/2013 auctioned 7/9/2003 & 10/9/2003:

Code: Select all

TIPS       TIPS        TIPS    TIPS Real  TIPS Actual    Actual    Nominal   Breakeven    Breakeven 
Coupon   Matures     Auction     Yield       Yield      CPI Chg     Yield     CPI Chg    less Actual
------   -------     -------     -----       -----      -------     -----     -------    -----------
Average of 14 auctions            3.50        6.06        2.56       5.33       1.83        (0.73)

1.875    Jul-13     07/09/03      2.00        4.43        2.43       3.73       1.73        (0.70)
1.875    Jul-13     10/09/03      2.23        4.70        2.47       4.32       2.09        (0.38)
                                 -----       -----      -------     -----     -------    -----------
Average of 16 auctions            3.33        5.87        2.54       5.17       1.84        (0.70)
Adding the two auctions of this recently matured 10-year TIPS slightly reduces the average advantage of the TIPS return vs the nominal return from 0.73% to 0.70%.

Source of TIPS yields:
5-Year TIPS Auctions
10-Year TIPS Auctions

Source of Nominal Treasury Yields from Federal Reserve Bank of St Louis:
5-Year Treasury Constant Maturity Rate (DGS5)
10-Year Treasury Constant Maturity Rate (DGS10)
Last edited by #Cruncher on Wed Jul 17, 2013 10:23 pm, edited 1 time in total.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by EDN »

A far less precise measure is to just to look at the difference in returns between the iShares 7-10YR treasury ETF (duration of 7.45) vs. Vanguard Inflation Protected fund (duration of 8.45). In doing so, we find that the TIPS fund outperformed by 0.19% per year over the last decade. Treasury returns for the last decade increased by about 0.4% per year for each year of increased duration from 5 years to about 10 years, so adding an additional year of TERM to the 7-10 year ETF would have put it ahead of TIPS by about 0.2% per year.

My guess would be that the risk premium for assuming unexpected inflation has been about 0.5% or so, with the difference between 0.5% and the actual 0.2% realized difference simply being a premium because of less liquidity of TIPS, or lower treasury bond yields for its flight to quality features.

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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

Below is a table adding the April 15, 2014 maturity to the list of 5-year TIPS.
Matured 5-year TIPS auctioned 7/9/1997 to 10/26/2009:

Code: Select all

TIPS       TIPS        TIPS    TIPS Real  TIPS Actual    Actual    Nominal   Breakeven    Breakeven 
Coupon   Matures      Auction	 Yield       Yield      CPI Chg     Yield     CPI Chg    less Actual
------   -------     --------    -----       -----      -------     -----     -------    -----------
3.625     Jul-02     07/09/97     3.74        6.10        2.36       6.15       2.41         0.05
3.625     Jul-02     10/08/97     3.60        6.02        2.42       5.96       2.36        (0.06)
0.875     Apr-10     10/26/04     0.95        3.45        2.50       3.26       2.31        (0.19)
0.875     Apr-10     04/26/05     1.20        3.71        2.51       3.96       2.76         0.25
0.875     Apr-10     10/25/05     1.74        4.00        2.26       4.41       2.67         0.41
2.375     Apr-11     04/25/06     2.38        4.57        2.19       4.98       2.60         0.42
2.375     Apr-11     10/23/06     2.69        4.51        1.82       4.80       2.11         0.29

Code: Select all

2.000     Apr-12     04/24/07     2.11        4.38        2.27       4.51       2.40         0.13
2.000     Apr-12     10/23/07     1.95        3.97        2.01       4.06       2.11         0.09
0.625     Apr-13     04/22/08     0.75        2.53        1.79       2.96       2.22         0.43
0.625     Apr-13     10/27/08     3.27        4.48        1.21       2.67      (0.60)       (1.81) <-- unusual
1.250     Apr-14     04/23/09     1.28        3.31        2.03       1.89       0.61        (1.42) <-- unusual
1.250     Apr-14     10/26/09     0.77        2.63        1.87       2.53       1.76        (0.10)
                                 -----       -----      -------     -----     -------    ---------
Average                           2.03        4.13        2.10       4.01       1.98        (0.12)
                                 -----       -----      -------     -----     -------    ---------
Average excl 10/2008 & 4/2009     1.99        4.17        2.18       4.33       2.34         0.15
On average if one had bought equal amounts at each of the 13 auctions of these 7 TIPS, one would have earned a nominal return of 4.13%. This was a slight 0.12% points higher than the 4.01% return one would have earned by buying equal amounts of the hypothetical 5-year constant maturity nominal Treasury on the same dates as the TIPS auctions.

However, this average is significantly distorted by the 10/27/2008 and 04/23/2009 auctions. Purchasers at these auctions would have fared much better (+1.81% points and +1.42% points) than purchasers of nominal Treasuries. Eliminating these two unusual issues, one would have earned on average 0.15% points less with TIPS than with nominals.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by Doc »

Comparisons of different bond types should be made on the basis of equal duration not equal maturity. But I don't know how to calculate the duration of TIPS and nominals on a consistent basis. #cruncher uses a real duration to facilitate comparing one TIPS fund/ETF with another since there is no standard definition and different sponsors do "what they think best". But here we need a better basis.

There are five factors influencing the difference between real and nominal bonds:

1) Expected vs actual inflation.
2) Unexpected Inflation insurance risk premium.
3) Liquidity issues.
4) Deflation fears. (All the data is influenced by the recent recession.)
5) Duration.

There is no way to determine the last four and the first arguably is dependent on the value of the others. :(
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

Below is a table adding the January and July 2014 * maturities to the list of 10-year TIPS.
Matured 10-year TIPS auctioned 1/29/1997 to 10/07/2004:

Code: Select all

----------------- T I P S --------------------
                               Real     Actual   Actual    Nominal   Breakeven   Breakeven
Coupon   Matures    Auction    Yield    Yield    CPI Chg    Yield     CPI Chg   less Actual
------   --------   -------    -----    -----    -------    -----     -------   -----------
3.375    Jan 2007   01/29/97    3.45     5.91      2.46      6.63       3.18        0.73
                    04/08/97    3.65     6.11      2.46      6.91       3.26        0.80
3.625    Jan 2008   01/08/98    3.73     6.36      2.63      5.49       1.76       (0.87)
                    10/07/98    3.65     6.40      2.75      4.34       0.69       (2.06)
3.875    Jan 2009   01/06/99    3.90     6.66      2.76      4.73       0.83       (1.93)
                    07/07/99    4.04     6.81      2.77      5.92       1.88       (0.89)

Code: Select all

4.250    Jan 2010   01/12/00    4.34     6.96      2.62      6.72       2.38       (0.24)
                    07/12/00    4.03     6.58      2.55      6.09       2.06       (0.49)
3.500    Jan 2011   01/10/01    3.52     5.90      2.37      5.10       1.58       (0.80)
                    07/11/01    3.50     5.79      2.29      5.31       1.81       (0.48)
3.375    Jan 2012   01/09/02    3.48     5.99      2.51      5.10       1.62       (0.89)
3.000    Jul 2012   07/10/02    3.10     5.63      2.53      4.66       1.56       (0.97)
                    10/09/02    2.26     4.81      2.55      3.61       1.35       (1.20)
                    01/08/03    2.34     4.91      2.57      4.00       1.66       (0.91)

Code: Select all

1.875    Jul 2013   07/09/03    2.00     4.43      2.43      3.73       1.73       (0.70)
                    10/09/03    2.23     4.70      2.47      4.32       2.09       (0.38)
2.000    Jan 2014   01/08/04    2.02     4.43      2.41      4.27       2.25       (0.16)
                    04/07/04    1.81     4.23      2.42      4.19       2.38       (0.04)
2.000    Jul 2014   07/08/04    2.02     4.39      2.37      4.49       2.47        0.10
                    10/07/04    1.89     4.26      2.38      4.26       2.38       (0.00)
                               -----    -----    -------    -----     -------     -------
Average                         3.05     5.56      2.51      4.99       1.95       (0.57)
On average if one had bought equal amounts at each of the 20 auctions of these 10 TIPS, one would have earned a nominal return of 5.56%. This is 0.57% points higher than the average 4.99% return one would have earned by buying equal amounts of the hypothetical 10-year constant maturity nominal Treasury on the same dates as the TIPS auctions. Adding the four auctions in 2004 has reduced this TIPS' advantage since the actual CPI change during their terms came in pretty close to the breakeven inflation rate at the times they were auctioned.

* Even though it's not yet the maturity date of the 7/15/2014 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier this week.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include the 5-year and 10-year TIPS maturing in 2015. Excluding two unusual 5-year auctions that occurred in October 2008 and April 2009, an investor would have fared an average 0.15% points better buying nominal Treasuries instead of TIPS. But a purchaser of all 10-year auctions would have fared 0.43% points worse had he bought nominal Treasuries instead.

5-Year TIPS Auctions 1997 - 2010

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------  ------
3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05
                 10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)
0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
                 04/26/05   1.20    3.71    2.51    3.96    2.76    0.25
                 10/25/05   1.74    4.00    2.26    4.40    2.66    0.39
2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42
                 10/23/06   2.69    4.51    1.82    4.81    2.12    0.30
2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13
                 10/23/07   1.95    3.97    2.01    4.01    2.05    0.04

Code: Select all

0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43
                 10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04) <- unusual
1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42) <- unusual
                 10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)
0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47
                 10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)
                            ----    ----    ----    ----    ----    ----
Average                     1.76    3.79    2.03    3.69    1.93   (0.10)
                            ----    ----    ----    ----    ----    ----
Avg w/o 10/08 & 4/09 auct   1.68    3.77    2.09    3.92    2.24    0.15
10-Year TIPS Auctions 1997 - 2005

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------  ------
3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73
                 04/08/97   3.65    6.11    2.46    6.91    3.26    0.80
3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
                 10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)
3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
                 07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)
4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
                 07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)

Code: Select all

3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
                 07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)
3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
                 10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
                 01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)
1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
                 10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)

Code: Select all

2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
                 04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10
                 10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)
1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26
                 04/14/05   1.75    4.01    2.26    4.35    2.60    0.34
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 *
                 10/13/05   1.98    4.00    2.03    4.47    2.49    0.47 *
                            ----    ----    ----    ----    ----    ----
Average                     2.85    5.30    2.45    4.87    2.02   (0.43)
I've tweaked the methodology this time. Before I simply used the nominal Treasury 5-year and 10-year constant maturity rates on the day of the auction. But now when the time from auction to maturity differs by more than 0.1 year from exactly 5 or 10 years, I interpolate using the 3-year or 7-year constant maturity rates. This is probably best explained with an example: The 10/26/2009 5-year auction occurred 4.468 years before the 4/15/2014 maturity. On 10/26/2009 the 3 and 5 year constant maturity rates were 1.61% and 2.53%. (See 2009 Daily Treasury Yield Curve Rates.) I interpolated between these to get the assumed 2.29% nominal rate used in the table.

Code: Select all

2.29 = 1.61 + (4.468 - 3) * (2.53 - 1.61) / 2
As before, I got the real and actual CPI-adjusted TIPS yields from 5-year TIPS auctions and 10-year TIPS auctions. I downloaded the nominal constant maturity rates from the FRED web site: 3 Year, 5 Year, 7 Year, and 10-Year.

* Even though it's not yet the maturity date of the 1.875% 7/15/2015 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier this week
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Re: Treasury Notes Return vs Actual TIPS Return

Post by Doc »

Post deleted by Doc.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by Rob5TCP »

Thank you for that analysis. I was curious. Other than a bunch of TIPS I bought during late 08 (and did very well); I've mostly been accumulating I Bonds since then. Interesting that, for the most part, less than 1% difference between the two (again late 08 and early 09 being the exception).
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include the 5-year and 10-year TIPS maturing in 2016.

The table below compares the results of a purchase at each auction of 5-year TIPS with a purchase on the same date of a hypothetical nominal Treasury maturing on about the same date as the TIPS. In 2011 the nominal Treasury purchase provided a yield from 0.51% to 0.93% points higher than the TIPS purchase. For example, the real yield of the 4/15/2016 TIPS bought at the initial auction on 4/21/2011 was -0.18%. After CPI adjustment, the nominal yield came in at 1.21%. (See this web page.) The 5-year constant maturity nominal Treasury yielded 2.14% on 4/21/2011. (See this web page.) This was 0.93% points more than the nominal yield on the TIPS. Looked at another way, the 2.32% breakeven yield (2.14% less -0.18%) was 0.93% points more than the actual 1.39% increase due to the CPI. Since 1997, excluding two unusual 5-year auctions that occurred in October 2008 and April 2009, the purchaser of nominal Treasuries would have gotten a yield 0.25% points higher on average than a TIPS purchaser.

5-Year TIPS Auctions 1997 - 2011

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05 
3.625  Jul 2002  10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)
0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
0.875  Apr 2010  04/26/05   1.20    3.71    2.51    3.96    2.76    0.25 
0.875  Apr 2010  10/25/05   1.74    4.00    2.26    4.40    2.66    0.39 
2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42 
2.375  Apr 2011  10/23/06   2.69    4.51    1.82    4.81    2.12    0.30 
2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13 
2.000  Apr 2012  10/23/07   1.95    3.97    2.01    4.01    2.05    0.04 
0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43 
0.625  Apr 2013  10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04) <- unusual
1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42) <- unusual
1.250  Apr 2014  10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)
0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47 
0.500  Apr 2015  10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)

Code: Select all

0.125  Apr 2016  04/21/11  (0.18)   1.21    1.39    2.14    2.32    0.93 
0.125  Apr 2016  08/18/11  (0.83)   0.23    1.05    0.80    1.63    0.57 
0.125  Apr 2016  12/15/11  (0.88)   0.18    1.06    0.70    1.57    0.51 
                            ----    ----    ----    ----    ----    ----
Average                     1.36    3.25    1.88    3.28    1.91    0.03
                            ----    ----    ----    ----    ----    ----
Average excl 10/08 & 4/09   1.25    3.17    1.92    3.41    2.16    0.25
The table below shows a similar comparison for 10-year TIPS. In 2006 a purchase of 10-year nominal Treasuries provided a yield from 0.53% to 0.76% points higher than 10-year TIPS purchased at the four auctions that year. For example, the real yield of the 1/15/2016 TIPS bought at the initial auction on 1/12/2006 was 2.03%. After CPI adjustment, the nominal yield came in at 3.89%. (See this web page.) The 10-year constant maturity nominal Treasury yielded 4.42% on 1/12/2006. (See this web page.) This was 0.53% points more than the nominal yield on the TIPS. Looked at another way, the 2.40% breakeven yield (4.42% less 2.03%) was 0.53% points more than the actual 1.87% increase due to the CPI. However since TIPS' introduction in 1997, the purchaser of nominal 10-year Treasuries would have gotten a yield 0.27% points lower on average than a 10-year TIPS purchaser.

10-Year TIPS Auctions 1997 - 2006

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73 
3.375  Jan 2007  04/08/97   3.65    6.11    2.46    6.91    3.26    0.80 
3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
3.625  Jan 2008  10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)
3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
3.875  Jan 2009  07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)
4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
4.250  Jan 2010  07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)
3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
3.500  Jan 2011  07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)
3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
3.000  Jul 2012  10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
3.000  Jul 2012  01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)
1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
1.875  Jul 2013  10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)
2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
2.000  Jan 2014  04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10 
2.000  Jul 2014  10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)
1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26 
1.625  Jan 2015  04/14/05   1.75    4.01    2.26    4.35    2.60    0.34 
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 
1.875  Jul 2015  10/13/05   1.98    4.00    2.03    4.47    2.49    0.47

Code: Select all

2.000  Jan 2016  01/12/06   2.03    3.89    1.87    4.42    2.40    0.53 
2.000  Jan 2016  04/12/06   2.41    4.33    1.92    4.98    2.57    0.65 
2.500  Jul 2016  07/13/06   2.55    4.32    1.77    5.08    2.53    0.76 [*]
2.500  Jul 2016  10/12/06   2.43    4.15    1.73    4.79    2.36    0.63 [*]
                            ----    ----    ----    ----    ----    ----
Average                     2.78    5.14    2.36    4.86    2.09   (0.27)
* Even though it's not yet the maturity date of the 2.5% 7/15/2016 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier today.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include TIPS maturing in 2017. These are the 5-year TIPS issued in 2012 and the 10-year TIPS issued in 2007. For all of them one would have done better with nominal Treasuries. In fact a purchaser at two of the three 5-year auctions, earned a negative return in nominal as well as real terms. (This had never before happened with a TIPS purchased at auction and held to maturity!)

The table below compares the results of a purchase at each of three 5-year TIPS auctions with a purchase on the same date of a hypothetical nominal Treasury maturing on about the same date. In 2012 the nominal Treasury purchase provided a yield from 0.59% to 0.97% points higher than the TIPS purchase. Since 1997, excluding two unusual 5-year auctions that occurred in October 2008 and April 2009, the purchaser of nominal Treasuries would have gotten a yield 0.33% points higher on average than a TIPS purchaser.

5-Year TIPS Auctions 1997 - 2012

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05 
3.625  Jul 2002  10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)
0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
0.875  Apr 2010  04/26/05   1.20    3.71    2.51    3.96    2.76    0.25 
0.875  Apr 2010  10/25/05   1.74    4.00    2.26    4.40    2.66    0.39 
2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42 
2.375  Apr 2011  10/23/06   2.69    4.51    1.82    4.81    2.12    0.30 
2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13 
2.000  Apr 2012  10/23/07   1.95    3.97    2.01    4.01    2.05    0.04 
0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43 
0.625  Apr 2013  10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04) <- unusual
1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42) <- unusual
1.250  Apr 2014  10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)
0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47 
0.500  Apr 2015  10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)
0.125  Apr 2016  04/21/11  (0.18)   1.21    1.39    2.14    2.32    0.93 
0.125  Apr 2016  08/18/11  (0.83)   0.23    1.05    0.80    1.63    0.57 
0.125  Apr 2016  12/15/11  (0.88)   0.18    1.06    0.70    1.57    0.51

Code: Select all

0.125  Apr 2017  04/19/12  (1.08)   0.25    1.33    0.84    1.92    0.59 
0.125  Apr 2017  08/23/12  (1.29)  (0.04)   1.25    0.65    1.93    0.68 
0.125  Apr 2017  12/20/12  (1.50)  (0.33)   1.16    0.64    2.14    0.97
                            ----    ----    ----    ----    ----    ----
Average                     0.99    2.78    1.79    2.91    1.92    0.13 
                            ----    ----    ----    ----    ----    ----
Average excl 10/08 & 4/09   0.85    2.66    1.81    2.99    2.14    0.33 
The table below shows a similar comparison for 10-year TIPS. In 2007 a purchase of 10-year nominal Treasuries provided a yield from 0.41% to 0.68% points higher than 10-year TIPS purchased at the four auctions that year. However since TIPS' introduction in 1997, the purchaser of nominal 10-year Treasuries would have gotten a yield 0.17% points lower on average than a 10-year TIPS purchaser.

10-Year TIPS Auctions 1997 - 2007

Code: Select all

---------------  T I P S ---------------                          Nominal
                            Real  Actual   Actual Nominal BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73 
3.375  Jan 2007  04/08/97   3.65    6.11    2.46    6.91    3.26    0.80 
3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
3.625  Jan 2008  10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)
3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
3.875  Jan 2009  07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)
4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
4.250  Jan 2010  07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)
3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
3.500  Jan 2011  07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)
3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
3.000  Jul 2012  10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
3.000  Jul 2012  01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)
1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
1.875  Jul 2013  10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)
2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
2.000  Jan 2014  04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10 
2.000  Jul 2014  10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)
1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26 
1.625  Jan 2015  04/14/05   1.75    4.01    2.26    4.35    2.60    0.34 
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 
1.875  Jul 2015  10/13/05   1.98    4.00    2.03    4.47    2.49    0.47
2.000  Jan 2016  01/12/06   2.03    3.89    1.87    4.42    2.40    0.53 
2.000  Jan 2016  04/12/06   2.41    4.33    1.92    4.98    2.57    0.65 
2.500  Jul 2016  07/13/06   2.55    4.32    1.77    5.08    2.53    0.76
2.500  Jul 2016  10/12/06   2.43    4.15    1.73    4.79    2.36    0.63

Code: Select all

2.375  Jan 2017  01/11/07   2.45    4.33    1.88    4.74    2.29    0.41 
2.375  Jan 2017  04/12/07   2.28    4.14    1.86    4.73    2.45    0.59 
2.625  Jul 2017  07/12/07   2.75    4.45    1.71    5.13    2.38    0.68 [*]
2.625  Jul 2017  10/11/07   2.36    4.06    1.70    4.65    2.29    0.58 [*]
                            ----    ----    ----    ----    ----    ----
Average                     2.74    5.03    2.29    4.86    2.12   (0.17)
* Even though it's not yet the maturity date of the 2.625% 7/15/2017 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier this week.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include TIPS maturing in 2018. These are the 10-year TIPS issued in 2008 and the 5-year TIPS issued in 2013.

Here is a chart showing the difference between the inflation-adjusted return of a 10-Year TIPS bought at auction and held to maturity and my estimate of the yield on a regular Treasury note of the same maturity bought on the same date as the auction. A positive bar indicates one would have gotten a better nominal return with the regular Treasury note. A negative bar indicates one would have done better with the TIPS.

Edited 6/13/2019 to remove chart since it is encompassed by the 10-year chart in the next post.

Except for the first two auctions in 1997, one would have done much better with the TIPS bought at the early auctions. But beginning about 2005 one would have done better buying regular Treasury notes. This was because ten year inflation beginning 2005-2008 turned out to be less than expected. But this doesn't mean it was a mistake to buy TIPS, any more than it is a mistake to buy fire insurance if it turns out no fire occurs.

Here is the data on which the chart is based. In 2008 a purchase of 10-year regular Treasuries on the same date as the first three of the four auctions provided a yield from 0.59% to 0.82% points higher than 10-year TIPS purchased at auction. However I estimate a regular Treasury bought on 10/8/2008, the last of the four TIPS auctions, would have returned 0.55% points less than the TIPS. (TIPS yields were unusually high in October 2008 because of the financial crisis.)

10-Year TIPS Auctions 1997 - 2008

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73 
3.375  Jan 2007  04/08/97   3.65    6.11    2.46    6.91    3.26    0.80 
3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
3.625  Jan 2008  10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)
3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
3.875  Jan 2009  07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)
4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
4.250  Jan 2010  07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)
3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
3.500  Jan 2011  07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)
3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
3.000  Jul 2012  10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
3.000  Jul 2012  01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)
1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
1.875  Jul 2013  10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)
2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
2.000  Jan 2014  04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10 
2.000  Jul 2014  10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)
1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26 
1.625  Jan 2015  04/14/05   1.75    4.01    2.26    4.35    2.60    0.34 
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 
1.875  Jul 2015  10/13/05   1.98    4.00    2.03    4.47    2.49    0.47
2.000  Jan 2016  01/12/06   2.03    3.89    1.87    4.42    2.40    0.53 
2.000  Jan 2016  04/12/06   2.41    4.33    1.92    4.98    2.57    0.65 
2.500  Jul 2016  07/13/06   2.55    4.32    1.77    5.08    2.53    0.76
2.500  Jul 2016  10/12/06   2.43    4.15    1.73    4.79    2.36    0.63
2.375  Jan 2017  01/11/07   2.45    4.33    1.88    4.74    2.29    0.41 
2.375  Jan 2017  04/12/07   2.28    4.14    1.86    4.73    2.45    0.59 
2.625  Jul 2017  07/12/07   2.75    4.45    1.71    5.13    2.38    0.68
2.625  Jul 2017  10/11/07   2.36    4.06    1.70    4.65    2.29    0.58

Code: Select all

1.625  Jan 2018  01/10/08   1.66    3.32    1.66    3.91    2.26    0.59 
1.625  Jan 2018  04/10/08   1.25    2.86    1.61    3.51    2.26    0.65 
1.375  Jul 2018  07/10/08   1.49    3.01    1.52    3.83    2.35    0.82  [*]
1.375  Jul 2018  10/08/08   2.85    4.22    1.37    3.68    0.83   (0.55) [*]
                            ----    ----    ----    ----    ----    ----
Average                     2.63    4.84    2.21    4.73    2.10   (0.11)
The following table shows the same comparison for 5-Year TIPS. In 2013 the nominal Treasury purchase provided a yield from 0.25% to 0.66% points higher than the TIPS bought at auction.

5-Year TIPS Auctions 1997 - 2013

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05 
3.625  Jul 2002  10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)
0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
0.875  Apr 2010  04/26/05   1.20    3.71    2.51    3.96    2.76    0.25 
0.875  Apr 2010  10/25/05   1.74    4.00    2.26    4.40    2.66    0.39 
2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42 
2.375  Apr 2011  10/23/06   2.69    4.51    1.82    4.81    2.12    0.30 
2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13 
2.000  Apr 2012  10/23/07   1.95    3.97    2.01    4.01    2.05    0.04 
0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43 
0.625  Apr 2013  10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04)
1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42)
1.250  Apr 2014  10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)
0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47 
0.500  Apr 2015  10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)
0.125  Apr 2016  04/21/11  (0.18)   1.21    1.39    2.14    2.32    0.93 
0.125  Apr 2016  08/18/11  (0.83)   0.23    1.05    0.80    1.63    0.57 
0.125  Apr 2016  12/15/11  (0.88)   0.18    1.06    0.70    1.57    0.51
0.125  Apr 2017  04/19/12  (1.08)   0.25    1.33    0.84    1.92    0.59 
0.125  Apr 2017  08/23/12  (1.29)  (0.04)   1.25    0.65    1.93    0.68 
0.125  Apr 2017  12/20/12  (1.50)  (0.33)   1.16    0.64    2.14    0.97

Code: Select all

0.125  Apr 2018  04/18/13  (1.31)   0.05    1.36    0.71    2.02    0.66 
0.125  Apr 2018  08/22/13  (0.13)   1.22    1.34    1.55    1.68    0.34 
0.125  Apr 2018  12/19/13  (0.38)   1.06    1.44    1.31    1.69    0.25
                            ----    ----    ----    ----    ----    ----
Average                     0.79    2.53    1.74    2.69    1.91    0.17
* Even though it's not yet the maturity date of the 1.375% 7/15/2018 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier this week.
Last edited by #Cruncher on Thu Jun 13, 2019 2:10 pm, edited 1 time in total.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include TIPS maturing in 2019. These are the 10-year TIPS issued in 2009 and the 5-year TIPS issued in 2014.

Here is a chart showing the difference between the inflation-adjusted return of a 10-Year TIPS bought at auction and held to maturity and my estimate of the yield on a regular Treasury note of the same maturity bought on the same date as the auction. A positive bar indicates one would have gotten a better nominal return with the regular Treasury note. A negative bar indicates one would have done better with the TIPS.

Image

Except for the first two auctions in 1997, one would have done much better with the TIPS bought at the early auctions. But beginning about 2005 one would have done better buying regular Treasury notes. This was because ten year inflation beginning 2005-2008 turned out to be less than expected. However, because their prices were depressed by the financial crisis TIPS bought at the last five auctions October 2008 - October 2009 did better.

Here is the same chart for 5-year TIPS. Except during the financial crisis, one would have generally done better buying regular 5-year Treasury notes.

Image


Here is the data on which the charts are based. In 2009 a purchase of 10-year regular Treasuries on the same dates as the four TIPS auctions provided a yield from 0.08% to 1.38% [1] points lower than the nominal yield of 10-year TIPS purchased at auction.

10-Year TIPS Auctions 1997 - 2009

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73 
3.375  Jan 2007  04/08/97   3.65    6.11    2.46    6.91    3.26    0.80 
3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
3.625  Jan 2008  10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)
3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
3.875  Jan 2009  07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)
4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
4.250  Jan 2010  07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)
3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
3.500  Jan 2011  07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)
3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
3.000  Jul 2012  10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
3.000  Jul 2012  01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)
1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
1.875  Jul 2013  10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)
2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
2.000  Jan 2014  04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10 
2.000  Jul 2014  10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)
1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26 
1.625  Jan 2015  04/14/05   1.75    4.01    2.26    4.35    2.60    0.34 
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 
1.875  Jul 2015  10/13/05   1.98    4.00    2.03    4.47    2.49    0.47
2.000  Jan 2016  01/12/06   2.03    3.89    1.87    4.42    2.40    0.53 
2.000  Jan 2016  04/12/06   2.41    4.33    1.92    4.98    2.57    0.65 
2.500  Jul 2016  07/13/06   2.55    4.32    1.77    5.08    2.53    0.76
2.500  Jul 2016  10/12/06   2.43    4.15    1.73    4.79    2.36    0.63
2.375  Jan 2017  01/11/07   2.45    4.33    1.88    4.74    2.29    0.41 
2.375  Jan 2017  04/12/07   2.28    4.14    1.86    4.73    2.45    0.59 
2.625  Jul 2017  07/12/07   2.75    4.45    1.71    5.13    2.38    0.68
2.625  Jul 2017  10/11/07   2.36    4.06    1.70    4.65    2.29    0.58
1.625  Jan 2018  01/10/08   1.66    3.32    1.66    3.91    2.26    0.59 
1.625  Jan 2018  04/10/08   1.25    2.86    1.61    3.51    2.26    0.65 
1.375  Jul 2018  07/10/08   1.49    3.01    1.52    3.83    2.35    0.82
1.375  Jul 2018  10/08/08   2.85    4.22    1.37    3.68    0.83   (0.55)

Code: Select all

2.125  Jan 2019  01/06/09   2.25    3.89    1.64    2.51    0.27   (1.38) [1]
2.125  Jan 2019  04/07/09   1.59    3.44    1.85    2.90    1.31   (0.54)
1.875  Jul 2019  07/06/09   1.92    3.76    1.84    3.52    1.60   (0.24) [2]
1.875  Jul 2019  10/05/09   1.51    3.29    1.78    3.21    1.70   (0.08) [2]
                            ----    ----    ----    ----    ----    ----
Average                     2.55    4.72    2.16    4.56    2.01   (0.15)
The following table shows the same comparison for 5-Year TIPS. In 2014 a regular Treasury purchased at the same time as the first two TIPS auctions provided a 0.51% or 0.57% higher nominal yield than the TIPS bought at either auction. But a regular Treasury note bought at the time of the third TIPS auction produced a yield 0.32% points lower.

5-Year TIPS Auctions 1997 - 2014

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05 
3.625  Jul 2002  10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)
0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
0.875  Apr 2010  04/26/05   1.20    3.71    2.51    3.96    2.76    0.25 
0.875  Apr 2010  10/25/05   1.74    4.00    2.26    4.40    2.66    0.39 
2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42 
2.375  Apr 2011  10/23/06   2.69    4.51    1.82    4.81    2.12    0.30 
2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13 
2.000  Apr 2012  10/23/07   1.95    3.97    2.01    4.01    2.05    0.04 
0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43 
0.625  Apr 2013  10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04)
1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42)
1.250  Apr 2014  10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)
0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47 
0.500  Apr 2015  10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)
0.125  Apr 2016  04/21/11  (0.18)   1.21    1.39    2.14    2.32    0.93 
0.125  Apr 2016  08/18/11  (0.83)   0.23    1.05    0.80    1.63    0.57 
0.125  Apr 2016  12/15/11  (0.88)   0.18    1.06    0.70    1.57    0.51
0.125  Apr 2017  04/19/12  (1.08)   0.25    1.33    0.84    1.92    0.59 
0.125  Apr 2017  08/23/12  (1.29)  (0.04)   1.25    0.65    1.93    0.68 
0.125  Apr 2017  12/20/12  (1.50)  (0.33)   1.16    0.64    2.14    0.97
0.125  Apr 2018  04/18/13  (1.31)   0.05    1.36    0.71    2.02    0.66 
0.125  Apr 2018  08/22/13  (0.13)   1.22    1.34    1.55    1.68    0.34 
0.125  Apr 2018  12/19/13  (0.38)   1.06    1.44    1.31    1.69    0.25

Code: Select all

0.125  Apr 2019  04/17/14  (0.21)   1.24    1.45    1.75    1.96    0.51 
0.125  Apr 2019  08/21/14  (0.28)   0.95    1.23    1.52    1.80    0.57 
0.125  Apr 2019  12/18/14   0.40    1.81    1.41    1.48    1.09   (0.32)
                            ----    ----    ----    ----    ----    ----
Average                     0.70    2.40    1.70    2.57    1.88    0.18
  1. The 2.125% 10-year TIPS auctioned 1/6/2009 brought a 2.245% yield-to-maturity. On the same day the constant maturity 10-year Treasury yield was 2.51%. This was in the throes of the 2008-2009 recession and the market was apparently expecting 10-year inflation to only be about 0.27% (2.51% - 2.245%). The actual inflation adjusted yield of this TIPS came in at 3.887%. This means the average annual CPI increase was 1.64% (3.887% - 2.245%) or 1.38% points more than what the market anticipated ten years before.
  2. Even though it's not yet the maturity date of the 1.875% 7/15/2019 TIPS, we have known the actual nominal yields of its two issues since the May CPI was released earlier this week.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

I've updated my comparisons to include TIPS maturing in 2020. These are the 10-year TIPS issued in 2010 and the 5-year TIPS issued in 2015.

Here is a chart showing the difference between the inflation-adjusted return of a 10-Year TIPS bought at auction and held to maturity and my estimate of the yield on a regular Treasury note of the same maturity bought on the same date as the auction. [1] A positive bar indicates one would have gotten a better nominal return with the regular Treasury note. A negative bar indicates one would have done better with the TIPS. Except for the first two auctions in 1997, one would have done much better with the TIPS bought at the early auctions. But beginning about 2005 one would have usually done better buying regular Treasury notes -- except for TIPS bought during the financial crisis at the five auctions October 2008 - October 2009.

Image

Here is the same chart for 5-year TIPS. Except during the financial crisis and in 2015, one would have generally done better buying regular 5-year Treasury notes.

Image


Here is the data on which the charts are based. In 2010 a purchase of 10-year regular Treasuries on the same dates as the five TIPS auctions provided a yield from 0.09% points worse to 0.66% points better than the nominal yield of 10-year TIPS purchased at auction.

10-Year TIPS Auctions 1997 - 2010

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.375  Jan 2007  01/29/97   3.45    5.91    2.46    6.63    3.18    0.73 
3.375  Jan 2007  04/08/97   3.65    6.11    2.46    6.91    3.26    0.80 

3.625  Jan 2008  01/08/98   3.73    6.36    2.63    5.49    1.76   (0.87)
3.625  Jan 2008  10/07/98   3.65    6.40    2.75    4.34    0.69   (2.06)

3.875  Jan 2009  01/06/99   3.90    6.66    2.76    4.73    0.83   (1.93)
3.875  Jan 2009  07/07/99   4.04    6.81    2.77    5.94    1.90   (0.86)

4.250  Jan 2010  01/12/00   4.34    6.96    2.62    6.72    2.38   (0.24)
4.250  Jan 2010  07/12/00   4.03    6.58    2.55    6.12    2.09   (0.46)

3.500  Jan 2011  01/10/01   3.52    5.90    2.37    5.10    1.58   (0.80)
3.500  Jan 2011  07/11/01   3.50    5.79    2.29    5.28    1.78   (0.50)

3.375  Jan 2012  01/09/02   3.48    5.99    2.51    5.10    1.62   (0.89)
3.000  Jul 2012  07/10/02   3.10    5.63    2.53    4.66    1.56   (0.97)
3.000  Jul 2012  10/09/02   2.26    4.81    2.55    3.58    1.32   (1.23)
3.000  Jul 2012  01/08/03   2.34    4.91    2.57    3.93    1.59   (0.98)

1.875  Jul 2013  07/09/03   2.00    4.43    2.43    3.73    1.73   (0.70)
1.875  Jul 2013  10/09/03   2.23    4.70    2.47    4.28    2.05   (0.42)

2.000  Jan 2014  01/08/04   2.02    4.43    2.41    4.27    2.25   (0.16)
2.000  Jan 2014  04/07/04   1.81    4.23    2.42    4.15    2.34   (0.08)
2.000  Jul 2014  07/08/04   2.02    4.39    2.37    4.49    2.47    0.10 
2.000  Jul 2014  10/07/04   1.89    4.26    2.38    4.23    2.35   (0.03)

1.625  Jan 2015  01/13/05   1.73    3.94    2.22    4.20    2.48    0.26 
1.625  Jan 2015  04/14/05   1.75    4.01    2.26    4.35    2.60    0.34 
1.875  Jul 2015  07/14/05   1.94    3.99    2.05    4.19    2.25    0.20 
1.875  Jul 2015  10/13/05   1.98    4.00    2.03    4.47    2.49    0.47

2.000  Jan 2016  01/12/06   2.03    3.89    1.87    4.42    2.40    0.53 
2.000  Jan 2016  04/12/06   2.41    4.33    1.92    4.98    2.57    0.65 
2.500  Jul 2016  07/13/06   2.55    4.32    1.77    5.08    2.53    0.76
2.500  Jul 2016  10/12/06   2.43    4.15    1.73    4.79    2.36    0.63

2.375  Jan 2017  01/11/07   2.45    4.33    1.88    4.74    2.29    0.41 
2.375  Jan 2017  04/12/07   2.28    4.14    1.86    4.73    2.45    0.59 
2.625  Jul 2017  07/12/07   2.75    4.45    1.71    5.13    2.38    0.68
2.625  Jul 2017  10/11/07   2.36    4.06    1.70    4.65    2.29    0.58

1.625  Jan 2018  01/10/08   1.66    3.32    1.66    3.91    2.26    0.59 
1.625  Jan 2018  04/10/08   1.25    2.86    1.61    3.51    2.26    0.65 
1.375  Jul 2018  07/10/08   1.49    3.01    1.52    3.83    2.35    0.82
1.375  Jul 2018  10/08/08   2.85    4.22    1.37    3.68    0.83   (0.55)

2.125  Jan 2019  01/06/09   2.25    3.89    1.64    2.51    0.27   (1.38)
2.125  Jan 2019  04/07/09   1.59    3.44    1.85    2.90    1.31   (0.54)
1.875  Jul 2019  07/06/09   1.92    3.76    1.84    3.52    1.60   (0.24)
1.875  Jul 2019  10/05/09   1.51    3.29    1.78    3.21    1.70   (0.08)

Code: Select all

1.375  Jan 2020  01/11/10   1.43    3.19    1.76    3.85    2.42    0.66 
1.375  Jan 2020  04/05/10   1.71    3.50    1.79    3.97    2.26    0.47 
1.250  Jul 2020  07/08/10   1.30    2.94    1.65    3.04    1.75    0.10  [2]
1.250  Jul 2020  09/02/10   1.02    2.70    1.68    2.60    1.59   (0.09) [2]
1.250  Jul 2020  11/04/10   0.41    2.09    1.68    2.45    2.04    0.36  [2]
                            ----    ----    ----    ----    ----    ----
Average                     2.40    4.51    2.11    4.41    2.01   (0.10)
The following table shows the same comparison for 5-Year TIPS. In 2015 a regular Treasury purchased at the same time as the three TIPS auctions provided a nominal return 0.23% to 0.81% points worse than the TIPS bought at auction.

5-Year TIPS Auctions 1997 - 2015

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real  Actual   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield   Yield  CPI Chg  Yield  CPI Chg   TIPS

Code: Select all

3.625  Jul 2002  07/09/97   3.74    6.10    2.36    6.15    2.41    0.05 
3.625  Jul 2002  10/08/97   3.60    6.02    2.42    5.95    2.35   (0.08)

0.875  Apr 2010  10/26/04   0.95    3.45    2.50    3.35    2.40   (0.10)
0.875  Apr 2010  04/26/05   1.20    3.71    2.51    3.96    2.76    0.25 
0.875  Apr 2010  10/25/05   1.74    4.00    2.26    4.40    2.66    0.39 

2.375  Apr 2011  04/25/06   2.38    4.57    2.19    4.98    2.60    0.42 
2.375  Apr 2011  10/23/06   2.69    4.51    1.82    4.81    2.12    0.30 

2.000  Apr 2012  04/24/07   2.11    4.38    2.27    4.51    2.40    0.13 
2.000  Apr 2012  10/23/07   1.95    3.97    2.01    4.01    2.05    0.04 

0.625  Apr 2013  04/22/08   0.75    2.53    1.79    2.96    2.22    0.43 
0.625  Apr 2013  10/27/08   3.27    4.48    1.21    2.45   (0.82)  (2.04)

1.250  Apr 2014  04/23/09   1.28    3.31    2.03    1.89    0.61   (1.42)
1.250  Apr 2014  10/26/09   0.77    2.63    1.87    2.29    1.52   (0.35)

0.500  Apr 2015  04/26/10   0.55    2.13    1.58    2.60    2.05    0.47 
0.500  Apr 2015  10/25/10  (0.55)   1.04    1.59    1.03    1.58   (0.01)

0.125  Apr 2016  04/21/11  (0.18)   1.21    1.39    2.14    2.32    0.93 
0.125  Apr 2016  08/18/11  (0.83)   0.23    1.05    0.80    1.63    0.57 
0.125  Apr 2016  12/15/11  (0.88)   0.18    1.06    0.70    1.57    0.51

0.125  Apr 2017  04/19/12  (1.08)   0.25    1.33    0.84    1.92    0.59 
0.125  Apr 2017  08/23/12  (1.29)  (0.04)   1.25    0.65    1.93    0.68 
0.125  Apr 2017  12/20/12  (1.50)  (0.33)   1.16    0.64    2.14    0.97

0.125  Apr 2018  04/18/13  (1.31)   0.05    1.36    0.71    2.02    0.66 
0.125  Apr 2018  08/22/13  (0.13)   1.22    1.34    1.55    1.68    0.34 
0.125  Apr 2018  12/19/13  (0.38)   1.06    1.44    1.31    1.69    0.25

0.125  Apr 2019  04/17/14  (0.21)   1.24    1.45    1.75    1.96    0.51 
0.125  Apr 2019  08/21/14  (0.28)   0.95    1.23    1.52    1.80    0.57 
0.125  Apr 2019  12/18/14   0.40    1.81    1.41    1.48    1.09   (0.32)

Code: Select all

0.125  Apr 2020  04/23/15  (0.34)   1.60    1.94    1.37    1.71   (0.23)
0.125  Apr 2020  08/20/15   0.31    2.03    1.72    1.41    1.11   (0.62)
0.125  Apr 2020  12/17/15   0.47    2.41    1.94    1.60    1.12   (0.81)
                            ----    ----    ----    ----    ----    ----
Average                     0.64    2.36    1.72    2.46    1.82    0.10
  1. See the bottom of my June 2015 post for an explanation of how I estimate the yield for a regular Treasury note.
  2. Even though it's not yet the maturity date of the 1.25% 7/15/2020 TIPS, we have known the actual nominal yields of its three issues since the May CPI was released earlier this month.
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Re: Treasury Notes Return vs Nominal TIPS Return

Post by #Cruncher »

Two 10-year and one 5-year TIPS matured in 2021. The 10-year TIPS were issued in six auctions in 2011. For the first four of these auctions, the yields [1] of regular Treasury notes bought on the same date as the auction were higher than the actual nominal return of the TIPS: 0.53% to 0.73% points higher. For the last two auctions the returns were about the same.

10-Year TIPS maturing in 2021:

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---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
1.125  Jan 2021  01/20/11   1.17    2.94    1.77    3.47    2.30    0.53 
1.125  Jan 2021  03/24/11   0.92    2.65    1.73    3.38    2.46    0.73 
1.125  Jan 2021  05/19/11   0.89    2.49    1.60    3.10    2.21    0.61

0.625  Jul 2021  07/21/11   0.64    2.36    1.72    3.03    2.39    0.67  [2]
0.625  Jul 2021  09/22/11   0.08    1.82    1.75    1.69    1.61   (0.13) [2]
0.625  Jul 2021  11/17/11   0.10    1.83    1.73    1.90    1.80    0.07  [2]
However the results were the opposite for purchases at the three 5-year auctions in 2016. The yields [1] of regular Treasury notes bought on the same date as the auction were lower than the actual nominal return of the TIPS: 0.16% to 0.56% points lower.

5-year TIPS maturing in 2021:

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---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
0.125  Apr 2021  04/21/16  (0.20)   1.85    2.04    1.35    1.55   (0.50)
0.125  Apr 2021  08/18/16  (0.21)   1.62    1.83    1.07    1.28   (0.56)
0.125  Apr 2021  12/22/16   0.12    2.03    1.91    1.87    1.75   (0.16)
  1. See the bottom of my June 2015 post for an explanation of how I estimate the yield for a regular Treasury note.
  2. Even though it's not yet the maturity date of the 5/8% 7/15/2021 TIPS, we have known the nominal returns of its three issues since the May CPI was released on Thursday.
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Re: Treasury Notes Return vs Actual TIPS Return

Post by seajay »

May be of interest (if not, sorry).

The UK have had index linked gilts (TIPS) since 1982. Using data sourced from Barclays Equity Gilt Study (2016) for inflation adjusted figures, plotting/comparing (over a period of high to low interest rate/inflation transition) ...

Image

Gilt are 20 year (fund) = 20 year Treasury.
Index Linked Gilt fund (TIPS) were 20 year up to 1990, 15 year thereafter

No costs/taxes factored in.
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#Cruncher
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Re: Treasury Notes Return vs Actual TIPS Return

Post by #Cruncher »

Two 10-year and one 5-year TIPS will mature in 2022. The 10-year TIPS were issued in six auctions in 2012. For all six of these auctions, the yields [1] of regular 10-year Treasury notes bought on the same date as the auction were about the same as the actual nominal return of the TIPS: 0.18% lower to 0.28% points higher, as shown in the far-right column below.

10-Year TIPS maturing in 2022:

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---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
0.125  Jan 2022  01/19/12  (0.05)   2.00    2.05    2.01    2.06    0.01 
0.125  Jan 2022  03/22/12  (0.09)   1.98    2.07    2.25    2.34    0.28 
0.125  Jan 2022  05/17/12  (0.39)   1.58    1.97    1.64    2.03    0.06

0.125  Jul 2022  07/19/12  (0.64)   1.72    2.36    1.54    2.18   (0.18) [2]
0.125  Jul 2022  09/20/12  (0.75)   1.68    2.43    1.76    2.51    0.09  [2]
0.125  Jul 2022  11/21/12  (0.72)   1.65    2.37    1.62    2.34   (0.02) [2]
However the story was different for purchases at the three 5-year auctions in 2017. The yields [1] of regular 5-year Treasury notes bought on the same date as the auction were much lower than the actual nominal return of the TIPS: 1.17% to 1.49% points lower, as shown in the far-right column below.

5-year TIPS maturing in 2022:

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---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
0.125  Apr 2022  04/20/17  (0.05)   2.95    3.00    1.78    1.83   (1.17)
0.125  Apr 2022  08/24/17   0.12    3.21    3.10    1.72    1.61   (1.49)
0.125  Apr 2022  12/21/17   0.37    3.54    3.17    2.17    1.80   (1.37)
  1. See the bottom of my June 2015 post for an explanation of how I estimate the yield for a regular Treasury note.
  2. Even though it's not yet the maturity date of the 1/8% 7/15/2022 TIPS, we have known the nominal returns of its three issues since the May CPI was released on Friday.
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Treasury Notes Return vs Actual TIPS Return - 2023 Maturities

Post by #Cruncher »

Two 10-year and one 5-year TIPS have matured or will mature shortly [1] in 2023. The 10-year TIPS were issued in six auctions in 2013. For all six of these auctions, the yields of regular 10-year Treasury notes bought on the same date as the auction [2] were slightly worse than the actual nominal return of the TIPS: 0.08% to 0.56% points lower, as shown in the far-right column below.

10-Year TIPS maturing in 2023:

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
0.125  Jan 2023  01/24/13  (0.63)   1.96    2.59    1.88    2.51   (0.08)
0.125  Jan 2023  03/28/13  (0.60)   2.03    2.63    1.83    2.43   (0.20)
0.125  Jan 2023  05/13/13  (0.23)   2.35    2.57    1.85    2.08   (0.49)
0.375  Jul 2023  07/18/13   0.38    3.06    2.67    2.56    2.18   (0.50) [1]
0.375  Jul 2023  09/19/13   0.50    3.19    2.69    2.72    2.22   (0.47) [1]
0.375  Jul 2023  11/21/13   0.56    3.27    2.71    2.71    2.15   (0.56) [1]
The comparison was greatly accentuated for purchases at the three 5-year auctions in 2018. The yields of regular 5-year Treasury notes bought on the same date as the auction were much lower than the actual nominal return of the TIPS: 1.65% to 2.51% points lower, as shown in the far-right column below.

5-year TIPS maturing in 2023:

Code: Select all

---------------  T I P S ---------------         Regular         Regular
                            Real Nominal   Actual   Note  BrkEven   less
Coupon  Matures   Auction  Yield  Return  CPI Chg  Yield  CPI Chg   TIPS
------ --------  --------  -----   -----  -------  -----  -------   ----
0.625  Apr 2023  04/19/18   0.63    4.42    3.79    2.77    2.14   (1.65)
0.625  Apr 2023  08/23/18   0.72    4.53    3.80    2.71    1.99   (1.82)
0.625  Apr 2023  12/20/18   1.13    5.16    4.03    2.65    1.52   (2.51)
The better return of TIPS was due to actual inflation being higher than the breakeven inflation rate at the time of each auction. For example, the yield at the 12/20/2018 auction of the 5-year TIPS maturing 4/15/2023 came in at 1.13%. On the auction date I estimate [2] the yield of a nominal treasury also maturing around 4/15/2023 was 2.65%, implying a breakeven inflation rate of about 1.5%. But the nominal return of the matured TIPS was 5.16% [3] meaning that average annual inflation actually ran about 4.0%, 2.5% points higher than breakeven at the time of the auction.
  1. Even though it's not yet the maturity date of the 3/8% 7/15/2023 TIPS, we have known since the May CPI was released on Tuesday, the nominal returns of its three issues.
  2. See the bottom of my June 2015 post for an explanation of how I estimate the yield for a regular Treasury note.
  3. 5.158% nominal return of the TIPS shown on this webpage. Here are the real and indexed cash flows and the corresponding returns. The Excel XIRR function is used to compute and Annual Percentage Yield (APY) on row 15 which is converted to an approximate Bond Equivalent Yield on row 16. (The formulas in cells D14:D16 are copied to cells C14:C16.)

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    Row       Col A     Col B      Col C      Col D  Formula in Column D
      2                 Index     --- Cash Flow ---
      3        Date     Ratio       Real    Indexed

    Code: Select all

      4  12/31/2018   1.01803   -980.275   -997.949  =B4*C4
      5   4/15/2019   1.01537      3.125      3.173   | | |
      6  10/15/2019   1.03291      3.125      3.228   | | |
      7   4/15/2020   1.03989      3.125      3.250   | | |
      8  10/15/2020   1.04460      3.125      3.264   | | |
      9   4/15/2021   1.05579      3.125      3.299   | | |
     10  10/15/2021   1.10011      3.125      3.438   | | |
     11   4/15/2022   1.13670      3.125      3.552   | | |
     12  10/15/2022   1.19259      3.125      3.727   v v v
     13   4/15/2023   1.20757  1,003.125  1,211.344  =B13*C13
     14         Sum               47.850    240.325  =SUM(D4:D13)
     15         APY               1.132%     5.222%  =XIRR(D4:D13,$A4:$A13)
     16  Bond Equiv               1.129%     5.155%  =2*((1+D15)^0.5-1)
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