I currently see YTM for TIPS with 2045 maturity (23 years) at 1.939%, is that what you're seeing?
Now that long TIPS yields are 60 bp off their highs I will…
Re: If long TIPS hit a real yield above 2.0% I will…
- gmaynardkrebs
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Re: If long TIPS hit a real yield above 2.0% I will…
Investors might think that stocks are far less risky than they actually are. I believe that’s been the case for quite some time, actually.vineviz wrote: ↑Mon Oct 03, 2022 10:55 amThanks for making this crucial point.
It is basically inconceivable that the expected 10-year return of stocks would ever routinely be less than the real yield of 10-year TIPS.
This would require investors being willing to pay a huge premium in order to own a MORE risky assets, something we've maybe only experienced in our worst stock bubbles (e.g. 1929 and 1999).
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Re: If long TIPS hit a real yield above 2.0% I will…
To build on that point, we're not really dealing with an asset allocation debate here. It's really more about TIPS versus nominals, cash, annutiies, etc.gmaynardkrebs wrote: ↑Mon Oct 03, 2022 12:01 pmInvestors might think that stocks are far less risky than they actually are. I believe that’s been the case for quite some time, actually.vineviz wrote: ↑Mon Oct 03, 2022 10:55 amThanks for making this crucial point.
It is basically inconceivable that the expected 10-year return of stocks would ever routinely be less than the real yield of 10-year TIPS.
This would require investors being willing to pay a huge premium in order to own a MORE risky assets, something we've maybe only experienced in our worst stock bubbles (e.g. 1929 and 1999).
Re: If long TIPS hit a real yield above 2.0% I will…
Use #Cruncher's spreadsheet to build your own ladder:ikowik wrote: ↑Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.
I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
http://eyebonds.info/downloads/pages/TIPSLadder.html
The only additional comment I would make to amend McQ's response is you could wait to fill in 2033-2039 until the the 10 year TIPS issue in 2023-2029 and buy at auction in January of each year. Or, you could just fill in those years with your iBonds for those years. I am doing a combination of both of those.
Wrench
Re: If long TIPS hit a real yield above 2.0% I will…
I see Tips some with a higher coupon and higher price than others with near maturity dates.
Any pros or cons to buy higher coupon or lower?
Any pros or cons to buy higher coupon or lower?
Re: If long TIPS hit a real yield above 2.0% I will…
There are endless nuances, of course, but all else equal I prefer lower coupon rates because I’m still a decade or more from retirement and prefer to minimize the amount I must reinvest each year.
This is purely a preference.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
- gmaynardkrebs
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Re: If long TIPS hit a real yield above 2.0% I will…
Some of the really low coupons are almost STRIPS, which I prefer, as it's almost a pure play. I also look for a lower bond factor, to minimize deflation risk. Somewhat of a balancing act.
Re: If long TIPS hit a real yield above 2.0% I will…
I see that TIPS ETFs are up pretty big today, which means TIPS yields are down.
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
Here are yields from Friday:
Here are yields now:
The 2045 TIPS ask yield for large quantity was 1.90% a few minutes ago. Right this moment I see 1.896 for min qty 50 and 1.891 for min qty 10. This is at Fidelity, but Vanguard should have similar yields.
Kevin
Here are yields now:
The 2045 TIPS ask yield for large quantity was 1.90% a few minutes ago. Right this moment I see 1.896 for min qty 50 and 1.891 for min qty 10. This is at Fidelity, but Vanguard should have similar yields.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
I'll start a new thread titled "If long TIPS hit a real yield above 1.9% I will..."
Do folks think that 1.9% is substantially different from 2.0%, or is it more psychological? I missed last week's 2% window, it seems, but strategically I'm not sure it makes a difference - I still want inflation protection for a percentage of my bond portfolio, and the I bond limits make it hard to keep up using just those. Functionally, 20 year TIPS at a yield around 2% seem like a good way to accomplish that.
Re: If long TIPS hit a real yield above 2.0% I will…
Thanks. I downloaded the spreadsheet. Very helpful.Wrench wrote: ↑Mon Oct 03, 2022 12:42 pmUse #Cruncher's spreadsheet to build your own ladder:ikowik wrote: ↑Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.
I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
http://eyebonds.info/downloads/pages/TIPSLadder.html
The only additional comment I would make to amend McQ's response is you could wait to fill in 2033-2039 until the the 10 year TIPS issue in 2023-2029 and buy at auction in January of each year. Or, you could just fill in those years with your iBonds for those years. I am doing a combination of both of those.
Wrench
Regarding Kevin M's post above on TIPS yields dropping today, I noticed the same. Went to Fidelity site to buy a TIPS bond for one rung in my ladder. As I was going back and forth, ask yields dropped for same issue. OK, it was just from 2.1% to 1.95%, but it did stop me from buying. As mentioned above, mostly a psychological barrier
- jeffyscott
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Re: If long TIPS hit a real yield above 2.0% I will…
I had a little cash to invest today, pension payday and some dividend/interest payments. I added most of it to a TIPS index fund, despite seeing that the prices were up.ikowik wrote: ↑Mon Oct 03, 2022 1:35 pm Regarding Kevin M's post above on TIPS yields dropping today, I noticed the same. Went to Fidelity site to buy a TIPS bond for one rung in my ladder. As I was going back and forth, ask yields dropped for same issue. OK, it was just from 2.1% to 1.95%, but it did stop me from buying. As mentioned above, mostly a psychological barrier
Re: If long TIPS hit a real yield above 2.0% I will…
Most people in this thread seem to think longer TIPS are a better deal right now. If you didn't want to buy individual TIPS what would you do? Vanguard, Fido and Schwab all have TIPS funds with low expenses and average maturity of about 7 years. Pimco has the LTPZ etf with expense ratio 0.20 and holds tips with maturities over 15 years. There may be other choices. Which is best?
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The most important thing you should know about me is that I am not an expert.
Re: If long TIPS hit a real yield above 2.0% I will…
I'm learning how to purchase TIPS on the secondary market at Fidelity to eventually build a ladder and this thread has been very informative, thanks!
As a learning experiment to understand the numbers better, I was thinking to buy $1000 of the 10-yr TIPS on the secondary market with maturity of 01/15/2023. it just has one final coupon payment of 0.125%. With the inflation factor (1.283) and accrued interest, earlier today it would cost approx $1275 to purchase with a yield to maturity of 2.6% (it was 2.8% this morning).
Questions:
1. Would there be a final inflation adjustment to principal before the jan-2023 maturity date and final coupon payment?
2. Does the current 2.6% YTM take into account future inflation adjustments?
3. Is the principal adjustment done every 6 months before the coupon payment? Is it based on inflation change from the previous adjustment/coupon? So if CPI is down from 6 months ago, would the principal be adjusted down accordingly? If I believe inflation will still be positive but less than 6 month ago, what can I expect from the principal adjustment? [This is where I'm still fuzzy]
Ultimately, I'm trying to understand the final payout/yield. At maturity, I would get the total inflation adjusted principal (currently ~$1283) plus/minus final adjustment value and the final 0.125 coupon payment on the final adjusted principal. Is that correct or is my understanding completely wrong? Thanks.
[Please pardon my naivety about this.]
As a learning experiment to understand the numbers better, I was thinking to buy $1000 of the 10-yr TIPS on the secondary market with maturity of 01/15/2023. it just has one final coupon payment of 0.125%. With the inflation factor (1.283) and accrued interest, earlier today it would cost approx $1275 to purchase with a yield to maturity of 2.6% (it was 2.8% this morning).
Questions:
1. Would there be a final inflation adjustment to principal before the jan-2023 maturity date and final coupon payment?
2. Does the current 2.6% YTM take into account future inflation adjustments?
3. Is the principal adjustment done every 6 months before the coupon payment? Is it based on inflation change from the previous adjustment/coupon? So if CPI is down from 6 months ago, would the principal be adjusted down accordingly? If I believe inflation will still be positive but less than 6 month ago, what can I expect from the principal adjustment? [This is where I'm still fuzzy]
Ultimately, I'm trying to understand the final payout/yield. At maturity, I would get the total inflation adjusted principal (currently ~$1283) plus/minus final adjustment value and the final 0.125 coupon payment on the final adjusted principal. Is that correct or is my understanding completely wrong? Thanks.
[Please pardon my naivety about this.]
Re: If long TIPS hit a real yield above 2.0% I will…
1. TIPS principal is adjusted for inflation daily. See the links in the OP to learn more.kalarama wrote: ↑Mon Oct 03, 2022 5:27 pm I'm learning how to purchase TIPS on the secondary market at Fidelity to eventually build a ladder and this thread has been very informative, thanks!
As a learning experiment to understand the numbers better, I was thinking to buy $1000 of the 10-yr TIPS on the secondary market with maturity of 01/15/2023. it just has one final coupon payment of 0.125%. With the inflation factor (1.283) and accrued interest, earlier today it would cost approx $1275 to purchase with a yield to maturity of 2.6% (it was 2.8% this morning).
Questions:
1. Would there be a final inflation adjustment to principal before the jan-2023 maturity date and final coupon payment?
2. Does the current 2.6% YTM take into account future inflation adjustments?
3. Is the principal adjustment done every 6 months before the coupon payment? Is it based on inflation change from the previous adjustment/coupon? So if CPI is down from 6 months ago, would the principal be adjusted down accordingly? If I believe inflation will still be positive but less than 6 month ago, what can I expect from the principal adjustment? [This is where I'm still fuzzy]
Ultimately, I'm trying to understand the final payout/yield. At maturity, I would get the total inflation adjusted principal (currently ~$1283) plus/minus final adjustment value and the final 0.125 coupon payment on the final adjusted principal. Is that correct or is my understanding completely wrong? Thanks.
[Please pardon my naivety about this.]
2. The TIPS yield is a real yield. You will earn the real YTM between settlement and maturity. That is, you will earn 2.6% annualized above inflation from settlement to maturity, but it is based on reference CPI dates, not CPI dates. The reference CPI for Nov 1 2022 is the CPI (unadjusted) for August.
3. Adjustment is daily. Coupon payments are paid based on adjusted principal. If reference CPI is down between two dates, the TIPS adjustments will be negative. That is the case for September and October inflation adjustments, because of small month over month deflation in July and August.
The index ratio (used for the inflation adjustment) at maturity, 1/15/23, requires the Feb 1 reference CPI, which is based on November inflation. The 1/15/23 ref CPI is interpolated between the 1/1/23 and 2/1/23 ref CPI values.
All TIPS will receive the same inflation adjustments between settlement and some future date. So all TIPS will receive the inflation adjustment based on the ref CPI at settlement, say 10/5/22 if you buy tomorrow, and the ref CPI on 1/15/23. The inflation adjustment will be the ref CPI on 1/15/23 divided by the ref CPI on 10/5/22.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
Testing my general understanding of this stuff...according to Vanguard screen this morning:
TIPS, CUSIP 912810FQ6, maturing 4/15/2032, coupon 3.375, premium 116.91, YTM 1.467
Compared to:
Nominal Treasury Note, CUSIP 91282CEP2, maturing 5/15/2032, coupon 2.875, discount 93.78, YTM 3.648
Questions:
1.If inflation averages 2.0% over approximately the next ten years, is the above nominal Treasury the better alternative? (I would hold these in my tIRA).
2.What is the breakeven inflation rate (approximately 2.2%?)?
TIPS, CUSIP 912810FQ6, maturing 4/15/2032, coupon 3.375, premium 116.91, YTM 1.467
Compared to:
Nominal Treasury Note, CUSIP 91282CEP2, maturing 5/15/2032, coupon 2.875, discount 93.78, YTM 3.648
Questions:
1.If inflation averages 2.0% over approximately the next ten years, is the above nominal Treasury the better alternative? (I would hold these in my tIRA).
2.What is the breakeven inflation rate (approximately 2.2%?)?
Re: If long TIPS hit a real yield above 2.0% I will…
I can't answer your question, but I hope some knowledgeable person will come along and answer it eventually. I am very curious.
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The most important thing you should know about me is that I am not an expert.
Re: If long TIPS hit a real yield above 2.0% I will…
Correct.
And rather than playing a game about trying to guess which will "be better", TIPS or nominal Treasuries, I always recommend focusing more on figuring out which is the most appropriate asset for YOUR goals. Not on picking a "winner".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: If long TIPS hit a real yield above 2.0% I will…
Answering in reverse order, since it makes more sense.Prudence wrote: ↑Tue Oct 04, 2022 9:09 am Testing my general understanding of this stuff...according to Vanguard screen this morning:
TIPS, CUSIP 912810FQ6, maturing 4/15/2032, coupon 3.375, premium 116.91, YTM 1.467
Compared to:
Nominal Treasury Note, CUSIP 91282CEP2, maturing 5/15/2032, coupon 2.875, discount 93.78, YTM 3.648
Questions:
1.If inflation averages 2.0% over approximately the next ten years, is the above nominal Treasury the better alternative? (I would hold these in my tIRA).
2.What is the breakeven inflation rate (approximately 2.2%?)?
2. Based on quotes I pulled from Fidelity a bit ago, standard BEI = 2.16%. Yields are slightly different than yours, and my spreadsheet pulls the 2/15/2032 nominal for the BEI calc, but it's within 1 basis point of the 5/15/32 (3.64% and 3.63%). Standard BEI = nominal yield minus real yield.
1. If inflation averages more than the BEI from settlement to maturity, the TIPS will earn more, and vice versa. But the dates used for the TIPS inflation adjustments are reference CPI dates. Nov 1 2022 ref CPI = August CPI (not seasonally adjusted).
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
Curious why the ref CPI lags by several months.Kevin M wrote: ↑Tue Oct 04, 2022 2:22 pmAnswering in reverse order, since it makes more sense.Prudence wrote: ↑Tue Oct 04, 2022 9:09 am Testing my general understanding of this stuff...according to Vanguard screen this morning:
TIPS, CUSIP 912810FQ6, maturing 4/15/2032, coupon 3.375, premium 116.91, YTM 1.467
Compared to:
Nominal Treasury Note, CUSIP 91282CEP2, maturing 5/15/2032, coupon 2.875, discount 93.78, YTM 3.648
Questions:
1.If inflation averages 2.0% over approximately the next ten years, is the above nominal Treasury the better alternative? (I would hold these in my tIRA).
2.What is the breakeven inflation rate (approximately 2.2%?)?
2. Based on quotes I pulled from Fidelity a bit ago, standard BEI = 2.16%. Yields are slightly different than yours, and my spreadsheet pulls the 2/15/2032 nominal for the BEI calc, but it's within 1 basis point of the 5/15/32 (3.64% and 3.63%). Standard BEI = nominal yield minus real yield.
1. If inflation averages more than the BEI from settlement to maturity, the TIPS will earn more, and vice versa. But the dates used for the TIPS inflation adjustments are reference CPI dates. Nov 1 2022 ref CPI = August CPI (not seasonally adjusted).
Kevin
Is this a legacy from when the calculations were done on an abacus? TIPs have not been around that long, I would think even at their inception, the calculations could have used the previous month's CPI as the reference
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: If long TIPS hit a real yield above 2.0% I will…
I agree. But, if inflation is 2.18% over approximately the next ten years and I hold this in my tIRA, then I would wind up with about the same result with either one of these choices, correct?vineviz wrote: ↑Tue Oct 04, 2022 2:16 pmCorrect.
And rather than playing a game about trying to guess which will "be better", TIPS or nominal Treasuries, I always recommend focusing more on figuring out which is the most appropriate asset for YOUR goals. Not on picking a "winner".
Re: If long TIPS hit a real yield above 2.0% I will…
I don't know the genesis, but I ran across the wording in the regulations once, and it's something like the reference value for the 1st of the month will be the CPI (not seasonally adjusted) from the 3rd prior month.marcopolo wrote: ↑Tue Oct 04, 2022 2:36 pm Curious why the ref CPI lags by several months.
Is this a legacy from when the calculations were done on an abacus? TIPs have not been around that long, I would think even at their inception, the calculations could have used the previous month's CPI as the reference
So in a few days we will have the Sep CPI, which will be the Dec 1 reference CPI. The November inflation adjustments will be known, and will be based on linear interpolation between Aug and Sep CPI (Nov 1 and Dec 1 ref cpi).
Kevin
If I make a calculation error, #Cruncher probably will let me know.
- jeffyscott
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Re: If long TIPS hit a real yield above 2.0% I will…
Since they mature on the 15th, I don't know if the lag could be any less.Kevin M wrote: ↑Tue Oct 04, 2022 2:54 pmI don't know the genesis, but I ran across the wording in the regulations once, and it's something like the reference value for the 1st of the month will be the CPI (not seasonally adjusted) from the 3rd prior month.marcopolo wrote: ↑Tue Oct 04, 2022 2:36 pm Curious why the ref CPI lags by several months.
Is this a legacy from when the calculations were done on an abacus? TIPs have not been around that long, I would think even at their inception, the calculations could have used the previous month's CPI as the reference
So in a few days we will have the Sep CPI, which will be the Dec 1 reference CPI. The November inflation adjustments will be known, and will be based on linear interpolation between Aug and Sep CPI (Nov 1 and Dec 1 ref cpi).
Kevin
The next maturity date is January 15. We'll get the Jan. 1 reference CPI in mid November and Feb 1 in mid December and only then will the Jan. 15 value be known.
Perhaps the CPI release dates might have allowed a shift of 1 month, but just barely. I don't know how the CPI release dates are set, but some are as late as the 13th. That would leave only 2 days to spare, should there be a TIPS maturing on the 15th of the same month, if they to reduce the lag by a month.
Re: If long TIPS hit a real yield above 2.0% I will…
A few days ago there was great enthusiasm here about buying long TIPS, even at the current yield of slightly below 2%. Then there was more technical discussion and less enthusiasm. What are your thoughts now?
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The most important thing you should know about me is that I am not an expert.
Re: If long TIPS hit a real yield above 2.0% I will…
Question: Regarding TIPS, does the Ask price and YTM displayed on the Vanguard screen fluctuate in real time throughout the business day (i.e. before I submit my buy order)?
Re: If long TIPS hit a real yield above 2.0% I will…
FWIW:
I am 62 and semi-retired. I plan on taking SS at age 70. Life expectancy for a male my age is 89-ish. Since real interest rates went positive I built a TIPS ladder to supplement SS for ages 70-89 (2030-2049). I bought in three tranches -- all on the secondary market -- the last being yesterday. For the "missing maturities" in the 2030s I bought TIPS that mature in the corresponding T-10 in the 2020s that I will rollover into new 10Y TIPS (assuming rates then are still positive; probably will use I bonds otherwise). I doubled up on 2024 (for 2033 and 2034) so I won't have to buy anything next year. Partly by chance, partly by design: the 2030s TIPS are in IRA; the 2040s TIPS are in Roth.
My first two tranches are "under water" and of course I wish I had delayed all purchases till now. (I think my average YTM is about 1.6.) Ah well. I am holding all till maturity and it is a great relief to know that my basic expenses are covered (-ish) between SS and TIPS for my "formal retirement" no matter what hell may break loose between now and then as well as during then. (I'm also planning annuitizing a modest TIAA TRADITIONAL account at age 70 to give the "third leg" to the stool, a la grok87.)
I have a combination of assets plus limited work income to get me to age 70 / 2030, including a good slug of I bonds. Plus a "risk portfolio" that hopefully will render this "insurance" of limited value. If/when I it looks like I may be living longer than my current life expectancy (and/or long TIPS become a real screaming buy) I'll consider extending the ladder a few rungs further) into the 2050s / age 90+.
I learned almost all I think I know on the matter from Bogleheads. Thanks, again, to this amazing community. I -- literally -- couldn't have done it without you.
Of course, I've probably done one or more things sub-optimally. Please feel free to point them out.
John
Re: If long TIPS hit a real yield above 2.0% I will…
I think any of these type of "back the truck up" concepts are flawed because it assumes you have a pile of cash laying around to take advantage of it. Otherwise you are being asked to deviate from your plan by trading out of something into something else. Basically all any of us can do is DCA into the asset allocation we have chosen. I think it is wonderful that real rates rising means that the TIPS portion is doing well, but I'm not going to take any action as a result. I can't think of what that action would be. I guess if I wanted to liquidate all my assets and buy a TIPS LMP, then maybe now would be a good time. I'm pretty sure I can't afford to do that, and it is certainly complicated to try, especially for people that have assets split across Roth, Taxable, TIRA. Am I missing the forest?
Then ’tis like the breath of an unfee’d lawyer.
- jeffyscott
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Re: If long TIPS hit a real yield above 2.0% I will…
Yes, I don't know where the money is coming from for those who are and have been buying.
Being retired, there's even less opportunity to do anything. I had a large amount to reinvest from a matured CD and a couple that I did early withdrawals from. But that was all done by sometime in August. As I noted earlier, I am redirecting bond fund dividends to TIPS and I also will have periodically maturing nominal Treasuries and CDs that can be reinvested in TIPS, if the real yields continue to be maybe at least 1%. At 2% real, I might consider selling some of a short term bond index fund to add to TIPS.
Re: If long TIPS hit a real yield above 2.0% I will…
Another Question: I am investing $30,000 in TIPS due 4/15/2023. The Vanguard screen displays a principal value of $35,420 and a price of 98.99. How is Vanguard calculating the principal value?
- jeffyscott
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Re: If long TIPS hit a real yield above 2.0% I will…
^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
Re: If long TIPS hit a real yield above 2.0% I will…
Some of us have EE Bonds that are no longer yielding significantly more than 20 or 19 or 18 year Nominals and would prefer TIPS anyway. So I redeemed $60k of EE Bonds (ok, $40k now and another $20k to be redeemed in January 2023). I used some short term $ I have to front the purchase of TIPS while waiting for the EE redemptions to post. Thee EE money will replace the short term $. So there are circumstances where some of us are adjusting an LMP previously built to take advantage of the current environment and eliminate some not very liquid EE Bonds. In my case I still have 2017-2019 EE bonds but need rates even higher than current to pull the trigger on that.Dude2 wrote: ↑Wed Oct 05, 2022 11:20 am
I think any of these type of "back the truck up" concepts are flawed because it assumes you have a pile of cash laying around to take advantage of it. Otherwise you are being asked to deviate from your plan by trading out of something into something else. Basically all any of us can do is DCA into the asset allocation we have chosen. I think it is wonderful that real rates rising means that the TIPS portion is doing well, but I'm not going to take any action as a result. I can't think of what that action would be. I guess if I wanted to liquidate all my assets and buy a TIPS LMP, then maybe now would be a good time. I'm pretty sure I can't afford to do that, and it is certainly complicated to try, especially for people that have assets split across Roth, Taxable, TIRA. Am I missing the forest?
Re: If long TIPS hit a real yield above 2.0% I will…
Don't TIPs pay their coupon every 6 months?jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: If long TIPS hit a real yield above 2.0% I will…
I don't know if you mean me but ....jeffyscott wrote: ↑Wed Oct 05, 2022 11:38 amYes, I don't know where the money is coming from for those who are and have been buying.
Being retired, there's even less opportunity to do anything. I had a large amount to reinvest from a matured CD and a couple that I did early withdrawals from. But that was all done by sometime in August. As I noted earlier, I am redirecting bond fund dividends to TIPS and I also will have periodically maturing nominal Treasuries and CDs that can be reinvested in TIPS, if the real yields continue to be maybe at least 1%. At 2% real, I might consider selling some of a short term bond index fund to add to TIPS.
I understand your point. Perhaps not everyone (perhaps not even most folks) can/should do this. In my case, however, much of my retirement savings is/was at TIAA. My overall portfolio was about 50/50, where a lot of "safe" 50% was in liquid TIAA Traditional at 3% (that was great for the last decade) and in TIAA Real Estate Account (a great diversifier). By sheer chance (?) 3% Trad seemed a lot less desirable (given inflation and rising rates) and TREA came to the end of a two-year stellar run at just the moment real interest rates were spiking. So, yes, I did reconfigure my portfolio by rolling over a big chunk to Fidelity IRA/Roth where I bought TIPS for $0 commission. It was really serendipity. And that I am at the right age for this to be reasonable. (I mean, I'm not sure I would have done this if I were 10 years younger.)
Future savings will go into "rebuilding" my TIAA 403b so I can continue to take advantage of TREA.
Not saying it's "right"; but it is what I did and why. I'm still open to finding out why it was boneheaded. After all, there's a reason my nom d'board is John Doh ...
Re: If long TIPS hit a real yield above 2.0% I will…
I understand but still don't get it. I want to shift about $36,000 in my money market to TIPS due in 2023. So, should I buy 30 of these bonds now to do the job (mostly).jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
Re: If long TIPS hit a real yield above 2.0% I will…
Thanks for that. I now understand that there are a few specific circumstances where people might be very interested in "backing up the truck", like a CD maturing is a good example, or, what you're saying, where they have not incurred losses with nominal bonds and want to trade over to TIPS now (I guess a stable value fund or the like is a good example). Definitely not people holding BND which is significantly down right now -- I wouldn't think.
Then ’tis like the breath of an unfee’d lawyer.
Re: If long TIPS hit a real yield above 2.0% I will…
Just now I can submit an order at Fidelity for 30 of the 4/15/23 for 35,546.27. This is a price of 99.046 and adjusted price of 118.13 (price times index ratio). There is 106.32 accrued interest. Just enter your quantity, and look at the total on the preview screen.Prudence wrote: ↑Wed Oct 05, 2022 12:20 pmI understand but still don't get it. I want to shift about $36,000 in my money market to TIPS due in 2023. So, should I buy 30 of these bonds now to do the job (mostly).jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
Someone who has had a large position in BND but an investment horizon longe than 7 years might take this opportunity to extend their duration and lock-in their speculative gains.Dude2 wrote: ↑Wed Oct 05, 2022 12:34 pmThanks for that. I now understand that there are a few specific circumstances where people might be very interested in "backing up the truck", like a CD maturing is a good example, or, what you're saying, where they have not incurred losses with nominal bonds and want to trade over to TIPS now (I guess a stable value fund or the like is a good example). Definitely not people holding BND which is significantly down right now -- I wouldn't think.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: If long TIPS hit a real yield above 2.0% I will…
Absolutely, price and yield fluctuate throughout the day. Usually my TIPS orders are executed within seconds, but sometimes the market will move before I click Submit, and the order won't get filled quickly, if at all.
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
Or, to put it in slightly different terms, the index ratio, which Fidelity calls inflation factor, is 1.19271 for a purchase today of the 4/15/23 TIPS. So at price I'm seeing now of 99.046 for min qty 25, adjusted price is 99.046 * 1.19271 = 118.13. The price you pay is that plus the accrued interest.jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
If I make a calculation error, #Cruncher probably will let me know.
Re: If long TIPS hit a real yield above 2.0% I will…
STIP and VTIP have durations of 2.4 and 2.6 years respectively. Expense ratios very low - 0.03 to 0.04%. I buy 5 and 10 year TIPS at auction through Fidelity and Schwab - prefer to manage my own maturity ladder in combination with nominal yield Treasuries and brokered CD's.tc101 wrote: ↑Mon Oct 03, 2022 4:22 pm Most people in this thread seem to think longer TIPS are a better deal right now. If you didn't want to buy individual TIPS what would you do? Vanguard, Fido and Schwab all have TIPS funds with low expenses and average maturity of about 7 years. Pimco has the LTPZ etf with expense ratio 0.20 and holds tips with maturities over 15 years. There may be other choices. Which is best?
Last edited by scamper on Wed Oct 05, 2022 12:59 pm, edited 1 time in total.
Re: If long TIPS hit a real yield above 2.0% I will…
Yes. If you buy between interest payments, you pay for and receive the accrued, inflation adjusted interest. At your first coupon payment, you get back the accrued interest plus the additional inflation adjusted interest you earned from settlement to first coupon.marcopolo wrote: ↑Wed Oct 05, 2022 11:59 amDon't TIPs pay their coupon every 6 months?jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
The inflation adjustments are done daily.
If I make a calculation error, #Cruncher probably will let me know.
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Re: If long TIPS hit a real yield above 2.0% I will…
Would love feedback on if any change to real yields should change my course. I'm at a loss:
1. I have approximately $60k in Total Bond Funds that are down significantly this year. Would it make sense to sell at a loss to pivot into TIPS? I don't need the money now or for the foreseeable future.
2. I have approximately $50k in Cash that I've parked in a HYSA as part of an emergency fund. Would it make sense to invest any of this $ into TIPS as some type of ladder? I also have a two year iBond ladder of $30k/year: first $30k available as of December, 2022. Second $40k available as of January, 2023. So I could see this being a continuation of that ladder.
1. I have approximately $60k in Total Bond Funds that are down significantly this year. Would it make sense to sell at a loss to pivot into TIPS? I don't need the money now or for the foreseeable future.
2. I have approximately $50k in Cash that I've parked in a HYSA as part of an emergency fund. Would it make sense to invest any of this $ into TIPS as some type of ladder? I also have a two year iBond ladder of $30k/year: first $30k available as of December, 2022. Second $40k available as of January, 2023. So I could see this being a continuation of that ladder.
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Re: If long TIPS hit a real yield above 2.0% I will…
I don't have any dry-powder, but used this opportunity to go from effectively 100% stocks to 90/10 with TIPS in my IRA. Still too low for my age (45), but this is the first time in years bonds have been appealing to me.
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Re: If long TIPS hit a real yield above 2.0% I will…
You had said you were investing $30K, that's the only reason I did the calculations for that amount.Prudence wrote: ↑Wed Oct 05, 2022 12:20 pmI understand but still don't get it. I want to shift about $36,000 in my money market to TIPS due in 2023. So, should I buy 30 of these bonds now to do the job (mostly).jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
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Re: If long TIPS hit a real yield above 2.0% I will…
Yes, so the last one was April 15 and the next one is October 15. So if buying now, you would have to pay the seller the accrued interest for the period from April 15.marcopolo wrote: ↑Wed Oct 05, 2022 11:59 amDon't TIPs pay their coupon every 6 months?jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
Re: If long TIPS hit a real yield above 2.0% I will…
Of course. For some reason i was thinking 6 months had already passed since 4/15!jeffyscott wrote: ↑Wed Oct 05, 2022 2:20 pmYes, so the last one was April 15 and the next one is October 15. So if buying now, you would have to pay the seller the accrued interest for the period from April 15.marcopolo wrote: ↑Wed Oct 05, 2022 11:59 amDon't TIPs pay their coupon every 6 months?jeffyscott wrote: ↑Wed Oct 05, 2022 11:53 am ^ The inflation adjusted principle for that TIPS is about 1192. So at a price of 98.99, you would pay about $1180 per bond (0.9899 x $1192.xx). There would also be accrued interest from 4/15/22 to the settlement date added.
So if you actually want to invest about $30K, you might buy 25 bonds (25 x 1180 = $29,500).
Sorry for adding any confusion to this thread.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: If long TIPS hit a real yield above 2.0% I will…
Dry powder / remaining firepower
Let me answer the OP question for myself as I see it today.
I’m a buyer of long TIPS now that they have come close to yielding 2.0%. Those due in the mid-2040s correspond to our joint life expectancy. Any real yield I lock today on those TIPS is locked for life.
*Too bad I’m condemned to buy LTPZ for the moment, average maturity about 2042. Rounding error when all is said and done, I’ll eventually own the individual bonds once our account structure gets rationalized.
Where do the funds come from? Conservative investments from before Jeremy Grantham even said "Beware!" I've got lots if you count fixed income embedded in balanced funds; as do most folks my age.
I started buying LTPZ last week; I’m under water as of today. No problem!
I expect to be further underwater next week and next month and next year. That’s okay; I’ll be buying more and averaging down.
The joy of buying TIPS at 2.125% will overcome any pangs about buying TIPS at 1.9%.
The excitement of buying TIPS at 2.25% will overcome the sorrow of further losses. And so on.
Easier to catch a falling knife once your hands are taped up from trying to catch the knife before.
Total purchases will average out at some deficit, possibly in the $10,000s, relative to the person who picked the absolute bottom and shoved in hundreds of thousands of chips right then at that day, hour, minute.
Not my standard of success. When all is said and done I’ll have converted most of my fixed income exposure to the safest bonds in the world with a locked in real yield greater than what anyone can expect on an equally safe long nominal bond. Based on history. And that much more over an intermediate duration total bond fund.
My prospective regret is the same as I had in 2008-09. I was still converting less risky assets into risky stock assets through February 2009 (S&P decline of 50%, say). I had enough firepower to continue converting through declines of 60% and 70%; no more. So on the trajectory, I would have run out of dry powder to buy stocks about June 2009 if they had gone down 70%. Then it would be hold and pray.
Quick quiz: your stocks are down 70%. That’s the bottom, you are sure. The actual bottom was down 85% (late Spring 1932). How much did you lose between the false dawn (down 70%) and the true dawn?
As it happened, stocks bottomed March 9th 2009 at minus 57%. Didn’t/never hit my next threshold; so not all the dry powder got used. Consequence: dry powder moldered while stocks soared on the bounce.
I expect the same thing to happen with TIPS. True bottom might be a yield of, say, real 2.69%. My last purchase might be at 2.47%; weighted average yield of 2.25% on all the purchases, at best. Tens of thousands of dollars in moldering dry powder remaining, in case TIPS had bottomed closer to 3.0%.
And tens of thousands of dollars in losses if my purchases were marked to market at the very bottom.
I couldn’t care less. I’ll have legged most of my fixed income exposure into a guaranteed real yield of +2%. OMG.
And if the bottom was yesterday? I probably won’t have a loss on my position by next week, and at least I’ll have $100K locked into a real yield of not too much less than 2.0%.
Be still my heart.
Let me answer the OP question for myself as I see it today.
I’m a buyer of long TIPS now that they have come close to yielding 2.0%. Those due in the mid-2040s correspond to our joint life expectancy. Any real yield I lock today on those TIPS is locked for life.
*Too bad I’m condemned to buy LTPZ for the moment, average maturity about 2042. Rounding error when all is said and done, I’ll eventually own the individual bonds once our account structure gets rationalized.
Where do the funds come from? Conservative investments from before Jeremy Grantham even said "Beware!" I've got lots if you count fixed income embedded in balanced funds; as do most folks my age.
I started buying LTPZ last week; I’m under water as of today. No problem!
I expect to be further underwater next week and next month and next year. That’s okay; I’ll be buying more and averaging down.
The joy of buying TIPS at 2.125% will overcome any pangs about buying TIPS at 1.9%.
The excitement of buying TIPS at 2.25% will overcome the sorrow of further losses. And so on.
Easier to catch a falling knife once your hands are taped up from trying to catch the knife before.
Total purchases will average out at some deficit, possibly in the $10,000s, relative to the person who picked the absolute bottom and shoved in hundreds of thousands of chips right then at that day, hour, minute.
Not my standard of success. When all is said and done I’ll have converted most of my fixed income exposure to the safest bonds in the world with a locked in real yield greater than what anyone can expect on an equally safe long nominal bond. Based on history. And that much more over an intermediate duration total bond fund.
My prospective regret is the same as I had in 2008-09. I was still converting less risky assets into risky stock assets through February 2009 (S&P decline of 50%, say). I had enough firepower to continue converting through declines of 60% and 70%; no more. So on the trajectory, I would have run out of dry powder to buy stocks about June 2009 if they had gone down 70%. Then it would be hold and pray.
Quick quiz: your stocks are down 70%. That’s the bottom, you are sure. The actual bottom was down 85% (late Spring 1932). How much did you lose between the false dawn (down 70%) and the true dawn?
As it happened, stocks bottomed March 9th 2009 at minus 57%. Didn’t/never hit my next threshold; so not all the dry powder got used. Consequence: dry powder moldered while stocks soared on the bounce.
I expect the same thing to happen with TIPS. True bottom might be a yield of, say, real 2.69%. My last purchase might be at 2.47%; weighted average yield of 2.25% on all the purchases, at best. Tens of thousands of dollars in moldering dry powder remaining, in case TIPS had bottomed closer to 3.0%.
And tens of thousands of dollars in losses if my purchases were marked to market at the very bottom.
I couldn’t care less. I’ll have legged most of my fixed income exposure into a guaranteed real yield of +2%. OMG.
And if the bottom was yesterday? I probably won’t have a loss on my position by next week, and at least I’ll have $100K locked into a real yield of not too much less than 2.0%.
Be still my heart.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
Re: If long TIPS hit a real yield above 2.0% I will…
Could you please further elaborate (I don't think I am grasping it all). I am very closely watching the general topic as I attempt to figure out what to do over the longer term as far as fixed income (married / both age 50).vineviz wrote: ↑Wed Oct 05, 2022 12:42 pmSomeone who has had a large position in BND but an investment horizon longe than 7 years might take this opportunity to extend their duration and lock-in their speculative gains.Dude2 wrote: ↑Wed Oct 05, 2022 12:34 pmThanks for that. I now understand that there are a few specific circumstances where people might be very interested in "backing up the truck", like a CD maturing is a good example, or, what you're saying, where they have not incurred losses with nominal bonds and want to trade over to TIPS now (I guess a stable value fund or the like is a good example). Definitely not people holding BND which is significantly down right now -- I wouldn't think.
* Have maintained my existing investments in BND and BNDX
- BND: ~370K
- BNDX: ~80K
* New fixed income monies directed toward stable value beginning in 2021
- Stable Value: ~45K
Total: 495K (~30% of portfolio)
I am seriously considering a modification to this setup including TIPS for the long run, but remain perplexed whether or not it is prudent to exit full / partial from BND / BNDX in doing so or let it ride.
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Re: If long TIPS hit a real yield above 2.0% I will…
It doesn’t appear as if TIPs are really making up for their long term underperformance during the greatest unexpected inflation shock in 40 years. The link below has a backtest of a 60/40 portfolio comparing intermediate TIPs, long term TIPs, and long term treasuries where EDV and VGLT are mixed to make the duration of LTTs and LTTips match. LTTs have a more negative correlation with stocks so are a clear winner on a total and risk adjusted basis.
https://www.portfoliovisualizer.com/ba ... ation6_3=8
The link here shows TIPs underperformed identical duration treasuries during the GFC when the protection would’ve been the most helpful. It’s possible TIPs could be useful in the future but they don’t have a history of doing. It’d take another period of unexpected inflation for them to pay off. Correlations amongst components of your portfolio are more important than inflation protection in this case.
https://www.portfoliovisualizer.com/ba ... tion6_3=40
https://www.portfoliovisualizer.com/ba ... ation6_3=8
The link here shows TIPs underperformed identical duration treasuries during the GFC when the protection would’ve been the most helpful. It’s possible TIPs could be useful in the future but they don’t have a history of doing. It’d take another period of unexpected inflation for them to pay off. Correlations amongst components of your portfolio are more important than inflation protection in this case.
https://www.portfoliovisualizer.com/ba ... tion6_3=40