10Y TIPS May Re-Opening

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bpg1234
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Re: 10Y TIPS May Re-Opening

Post by bpg1234 »

Kevin M wrote: Tue May 17, 2022 4:43 pm
bpg1234 wrote: Tue May 17, 2022 3:43 pm
Kevin M wrote: Tue May 17, 2022 2:08 pm Yield on the 1/15/2032 is up a bit today from yesterday. Based on Fidelity quotes right now:

Ask yield (best, min qty 10) is 0.232% and bid yield is 0.267%. Expected auction yield 0.233%.

How about half now and half at auction?
Kevin,

Actually good idea so only half wrong or half right either way lol.

This is our first-ever individual TIPS purchase and as retirees mainly looking for some additional inflation protection outside of iBonds which we have a couple hundred K in at this point so is $100K total here ($50K each with secondary and auction) thought to be too much for our first acquisitions or should we instead look to DCA in over time as rates may potentially increase with say $10K per purchase? Thanks in advance as usual of any perspective you may have.

-bpg
Nobody knows, but personally I am easing into both TIPS and nominal Treasuries, but at shorter durations than the 10-year. Of course many recommend going all in on your desired asset allocation now.

About a year ago I bought 10 each of the 7/15/2023 TIPS at -2.89% and the 7/15/2023 nominal at 0.16%, just to see what would happen. Today I bought another 10 of each, with TIPS yield = -2.67% and nominal = 2.27%. So TIPS yield up a bit and nominal up quite a bit (I have bought other TIPS and nominals lately too). And they now are closer to 1-year maturity than about 2-year maturity at purchase.

The breakeven inflation rate (BEI) was 4.18% for my purchases a year ago. Since nominal yield has gone up much more than TIPS yield, the BEI for these purchases is 4.93%.

In nominal terms, the TIPS bought a year ago has a positive gain, while the nominal is negative. Not surprising given recent inflation and larger increases in nominal yields.

Kevin
Thanks for your input. I may ease into TIPS like you are doing. I recently purchased a few 1 year and a 2 year nominal treasury, in addition to a 3 year broker CD to fill out my 5 year fixed income ladder. Now just need to figure out the TIPS piece. Thanks again.
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Drew31
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Re: 10Y TIPS May Re-Opening

Post by Drew31 »

Tomorrow is the big day!

Just looking on Fidelity and I see the high ask of .137 on the secondary. Interested to see where this comes in tomorrow.
rockstar
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Re: 10Y TIPS May Re-Opening

Post by rockstar »

Drew31 wrote: Wed May 18, 2022 6:12 pm Tomorrow is the big day!

Just looking on Fidelity and I see the high ask of .137 on the secondary. Interested to see where this comes in tomorrow.
Timing couldn't be worse. But it's still positive for now.
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

rockstar wrote: Wed May 18, 2022 7:07 pm
Drew31 wrote: Wed May 18, 2022 6:12 pm Tomorrow is the big day!

Just looking on Fidelity and I see the high ask of .137 on the secondary. Interested to see where this comes in tomorrow.
Timing couldn't be worse. But it's still positive for now.
Yeah, I see 0.135% at Fidelity as of about 12:30 pm. Down almost 10 basis points from yesterday! Bid quote was 0.167%, which agrees with today's Treasury CMT real yield of 0.17%, down 10 bps from 0.27% yesterday.
If I make a calculation error, #Cruncher probably will let me know.
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jeffyscott
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Re: 10Y TIPS May Re-Opening

Post by jeffyscott »

While we don't know what the auction yield will be yet, if by waiting for the auction one ended up buying at a yield that is 10 BP lower, would the effective cost of waiting have been about $10 per $1000 ($1000 X 0.1% X 10 years)?

Then adding to that is the 11-12 days from now to settlement. If that's factored in based on an expected nominal return of about 3%, it's about another $1 per $1000. That's a total of $11 per $1000, perhaps reduced a bit by money market yield for those at Vanguard (others are still getting near 0% on cash).

Not sure how that compares to whatever the hidden costs of just buying on the secondary market typically would be, just noting that waiting for the auction was not necessarily free, either.
TLC
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Re: 10Y TIPS May Re-Opening

Post by TLC »

Did we get that last-minute, auction bounce again? It looks like 0.232%.
https://www.treasurydirect.gov/instit/a ... 0519_3.pdf
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

Yes, auction yield is 0.232%. Currently ask yield at Fidelity is 0.187 and bid yield is 0.220. So auction yield about 4 bps above ask yield, but it doesn't settle until 5/31.

Using Treasury CMT numbers, high yield was on 0.34% on 5/10, and there were six days in May when there was a higher yield.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
johnny
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Re: 10Y TIPS May Re-Opening

Post by johnny »

I'm pleased to see the "bounce." Just purchased the first rung of a TIPS ladder. A couple of years ago I think this topic would have been completely baffling to me, but with the help of this forum, and reading Bill Bernstein and Harry Sit, things are making sense. I appreciate everyone's input!
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

It will be interesting to see what the secondary ask yield is on 5/30, since that will settle on 5/31, same as the auction purchases.
If I make a calculation error, #Cruncher probably will let me know.
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dual
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Re: 10Y TIPS May Re-Opening

Post by dual »

I am trying to figure out the significance of these numbers. I typically would buy quantities of the order of $10,000. So one basis point, which is 1/100 of a percent, of $10k is one dollar. The difference is on annual interest paid. So even on $100,000, one basis point is about one dollar a month.

Are these numbers correct?
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Re: 10Y TIPS May Re-Opening

Post by tipswatcher »

Kevin M wrote: Thu May 19, 2022 1:29 pm It will be interesting to see what the secondary ask yield is on 5/30, since that will settle on 5/31, same as the auction purchases.
I am thinking at this point that the secondary market (which is probably lightly traded) and the TIPS auction market (with its billions of new supply even of existing issues) are now separate markets and starting to behave differently. There have been at least six consecutive TIPS auctions with above market yields. Today's yield was about 14 basis points higher than where this TIPS was trading mid-morning. And the bid-to-cover ratio was a rather pathetic 2.24. That shows weak demand for yields at these levels, with no Federal Reserve intervention. Big-money investors are looking for higher yields.
TIPS: Perfect investment for imperfect times?
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jeffyscott
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Re: 10Y TIPS May Re-Opening

Post by jeffyscott »

But the rest of the TIPS went down also. Maybe that's a reaction to the auction results?

Maybe demand was light due to the low yields just before?

I skipped it for that reason, but then went and bought a couple shorter term ones, after I saw the post here about the auction yield. Got about 0.2% on a 2030 and marginally positive yield on a 2028 (with a high coupon).
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gmaynardkrebs
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Re: 10Y TIPS May Re-Opening

Post by gmaynardkrebs »

jeffyscott wrote: Thu May 19, 2022 2:27 pm But the rest of the TIPS went down also. Maybe that's a reaction to the auction results?

Maybe demand was light due to the low yields just before?

I skipped it for that reason, but then went and bought a couple shorter term ones, after I saw the post here about the auction yield. Got about 0.2% on a 2030 and marginally positive yield on a 2028 (with a high coupon).
The 20 is about 5 basis points higher than the 30 -- I don't recall seeing that for a while.
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jeffyscott
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Re: 10Y TIPS May Re-Opening

Post by jeffyscott »

gmaynardkrebs wrote: Thu May 19, 2022 2:36 pm
jeffyscott wrote: Thu May 19, 2022 2:27 pm But the rest of the TIPS went down also. Maybe that's a reaction to the auction results?

Maybe demand was light due to the low yields just before?

I skipped it for that reason, but then went and bought a couple shorter term ones, after I saw the post here about the auction yield. Got about 0.2% on a 2030 and marginally positive yield on a 2028 (with a high coupon).
The 20 is about 5 basis points higher than the 30 -- I don't recall seeing that for a while.
For whatever reason, the real yield curve rates don't show that. The 30 year is about 12 bp higher than 20.
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gmaynardkrebs
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Re: 10Y TIPS May Re-Opening

Post by gmaynardkrebs »

jeffyscott wrote: Thu May 19, 2022 4:40 pm
gmaynardkrebs wrote: Thu May 19, 2022 2:36 pm
jeffyscott wrote: Thu May 19, 2022 2:27 pm But the rest of the TIPS went down also. Maybe that's a reaction to the auction results?

Maybe demand was light due to the low yields just before?

I skipped it for that reason, but then went and bought a couple shorter term ones, after I saw the post here about the auction yield. Got about 0.2% on a 2030 and marginally positive yield on a 2028 (with a high coupon).
The 20 is about 5 basis points higher than the 30 -- I don't recall seeing that for a while.
For whatever reason, the real yield curve rates don't show that. The 30 year is about 12 bp higher than 20.
Jeff, FWIW, source is my Bloomberg terminal, showing the 30Y at .63% and the 20 at .75 at 4:59 pm EDST.
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#Cruncher
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Re: 10Y TIPS May Re-Opening

Post by #Cruncher »

Kevin M wrote: Thu May 19, 2022 1:05 pmYes, auction yield is 0.232%. Currently ask yield at Fidelity is 0.187 and bid yield is 0.220. So auction yield about 4 bps above ask yield, but it doesn't settle until 5/31.
Four basis points is roughly the difference we'd expect due to the different settlement dates of an auction purchase today and an after market purchase today. The latter would settle tomorrow, eleven days before the 5/31 settlement of the auction purchase. The index ratio of this TIPS increases from 1.03187 to 1.03672 during that period. (See this TreasuryDirect web page.)

Assuming a buyer would be willing to pay the same amount per $100 face value in either venue, we can calculate the aftermarket yield that would correspond to the 0.232% yield-to-maturity (YTM) of the auction purchase. The Adjusted Price (including index ratio) at the auction was 102.616800. (See auction results PDF.) Assuming the same Adjusted Price for the after market purchase [*], we can back into the Unadjusted Price and the corresponding YTM using Excel's YIELD function. The YTM for the after market purchase is about 0.05% points less.

Code: Select all

Row              Col A       Col B       Col C   Formula in col B copied to col C
  1           Maturity   1/15/2032
  2             Coupon      0.125%
  3                        Auction   After Mkt
  4    Settlement date   5/31/2022   5/20/2022
  5        Index ratio     1.03672     1.03187
  6     Adjusted price  102.616800  102.616800
  7   Unadjusted price   98.982175   99.447411  =B6/B5
  8  Yield to maturity      0.232%      0.183%  =YIELD(B4,$B1,$B2,B7,100,2,1)
* I'm ignoring a couple of other factors. But these net out to about 2/10 of a basis point. This would reduce the 0.049% YTM difference to about 0.047%.
  • The after market buyer will save a little money on accrued interest since he doesn't have to pay for the eleven days 5/20 to 5/31.
  • But on the other hand he forsakes eleven days interest he'd earn on his purchase money if he didn't have to settle until 5/31.
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jeffyscott
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Re: 10Y TIPS May Re-Opening

Post by jeffyscott »

dual wrote: Thu May 19, 2022 2:00 pm I am trying to figure out the significance of these numbers. I typically would buy quantities of the order of $10,000. So one basis point, which is 1/100 of a percent, of $10k is one dollar. The difference is on annual interest paid. So even on $100,000, one basis point is about one dollar a month.

Are these numbers correct?
That's what I get, 0.0001 X 10,000 = 1.

I'm looking at up to 10 years, so I think I should certainly be ignoring that level of difference (and more), which would be about $10 per $10K over 10 years.
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Re: 10Y TIPS May Re-Opening

Post by jeffyscott »

gmaynardkrebs wrote: Thu May 19, 2022 4:49 pm
jeffyscott wrote: Thu May 19, 2022 4:40 pm
gmaynardkrebs wrote: Thu May 19, 2022 2:36 pm
jeffyscott wrote: Thu May 19, 2022 2:27 pm But the rest of the TIPS went down also. Maybe that's a reaction to the auction results?

Maybe demand was light due to the low yields just before?

I skipped it for that reason, but then went and bought a couple shorter term ones, after I saw the post here about the auction yield. Got about 0.2% on a 2030 and marginally positive yield on a 2028 (with a high coupon).
The 20 is about 5 basis points higher than the 30 -- I don't recall seeing that for a while.
For whatever reason, the real yield curve rates don't show that. The 30 year is about 12 bp higher than 20.
Jeff, FWIW, source is my Bloomberg terminal, showing the 30Y at .63% and the 20 at .75 at 4:59 pm EDST.
Similarly on the WSJ TIPS quotes page, I saw that the highest listed yields were not the longest term TIPS. But for whatever reason, when Treasury does their estimated par yield curve that reverses.
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

tipswatcher wrote: Thu May 19, 2022 2:06 pm
Kevin M wrote: Thu May 19, 2022 1:29 pm It will be interesting to see what the secondary ask yield is on 5/30, since that will settle on 5/31, same as the auction purchases.
I am thinking at this point that the secondary market (which is probably lightly traded) and the TIPS auction market (with its billions of new supply even of existing issues) are now separate markets and starting to behave differently. There have been at least six consecutive TIPS auctions with above market yields. Today's yield was about 14 basis points higher than where this TIPS was trading mid-morning. And the bid-to-cover ratio was a rather pathetic 2.24. That shows weak demand for yields at these levels, with no Federal Reserve intervention. Big-money investors are looking for higher yields.
As I said, when I looked, at about 12:45 pm, secondary ask was only about 4 bps lower than auction. And again, something bought today settles tomorrow, while auction doesn't settle until 5/31. Not exactly apples to apples. Point being that buying on secondary isn't necessarily inferior to buying at auction.
If I make a calculation error, #Cruncher probably will let me know.
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

jeffyscott wrote: Thu May 19, 2022 5:05 pm
gmaynardkrebs wrote: Thu May 19, 2022 4:49 pm
jeffyscott wrote: Thu May 19, 2022 4:40 pm
gmaynardkrebs wrote: Thu May 19, 2022 2:36 pm The 20 is about 5 basis points higher than the 30 -- I don't recall seeing that for a while.
For whatever reason, the real yield curve rates don't show that. The 30 year is about 12 bp higher than 20.
Jeff, FWIW, source is my Bloomberg terminal, showing the 30Y at .63% and the 20 at .75 at 4:59 pm EDST.
Similarly on the WSJ TIPS quotes page, I saw that the highest listed yields were not the longest term TIPS. But for whatever reason, when Treasury does their estimated par yield curve that reverses.
The Treasury CMT yields are par yields, so assuming coupon = yield. There is nothing close to that at 20-year maturity, with 19.76-year coupon 0.75% and yield 0.74% and 20.76 at 0.625% and yield 0.77%. The actual yield curve peaks at 22.76-year at 0.81%, with 29.76-year at 0.62%.

Kevin
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

jeffyscott wrote: Thu May 19, 2022 5:00 pm
dual wrote: Thu May 19, 2022 2:00 pm I am trying to figure out the significance of these numbers. I typically would buy quantities of the order of $10,000. So one basis point, which is 1/100 of a percent, of $10k is one dollar. The difference is on annual interest paid. So even on $100,000, one basis point is about one dollar a month.

Are these numbers correct?
That's what I get, 0.0001 X 10,000 = 1.

I'm looking at up to 10 years, so I think I should certainly be ignoring that level of difference (and more), which would be about $10 per $10K over 10 years.
Yet another reason not to wait for the auction if the secondary market has something close to the maturity you want. In the case of this auction, you could buy the actual TIPS on the secondary, as will often be the case due to re-openings.

Kevin
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Re: 10Y TIPS May Re-Opening

Post by bridge2benefits »

This was fun - I bought some last week on the secondary market but I still had $1,047 in one of my retirement accounts, and I was hoping to use that to buy a single 10 year TIPS. I decided to put in an order for the auction and it was fortunate that the auction price turned out to be $1,026.66, so I made it with $20 to spare! Now, what do to with that last $20?

Edit: Now I'm in the market for some 5 year TIPS. I see the next auction is a re-opening on June 16th. Maybe we can have a thread for that one, too? Who said fixed income has to be boring? :P
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Kevin M
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Re: 10Y TIPS May Re-Opening

Post by Kevin M »

bridge2benefits wrote: Thu May 19, 2022 9:36 pm Edit: Now I'm in the market for some 5 year TIPS. I see the next auction is a re-opening on June 16th. Maybe we can have a thread for that one, too? Who said fixed income has to be boring? :P
You should start that thread.
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Re: 10Y TIPS May Re-Opening

Post by secondopinion »

bridge2benefits wrote: Thu May 19, 2022 9:36 pm This was fun - I bought some last week on the secondary market but I still had $1,047 in one of my retirement accounts, and I was hoping to use that to buy a single 10 year TIPS. I decided to put in an order for the auction and it was fortunate that the auction price turned out to be $1,026.66, so I made it with $20 to spare! Now, what do to with that last $20?

Edit: Now I'm in the market for some 5 year TIPS. I see the next auction is a re-opening on June 16th. Maybe we can have a thread for that one, too? Who said fixed income has to be boring? :P
I do not consider it boring; my emergency fund is actively managed in fixed income, so it adds a layer of yield that might not be had otherwise keeping it in cash (albeit I do hold a little cash for liquidity reasons).
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