Trading Treasuries (nominal and TIPS)

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
JayB
Posts: 659
Joined: Sat May 28, 2022 9:57 am

Re: Trading Treasuries (nominal and TIPS)

Post by JayB »

Doc wrote: Mon Aug 08, 2022 10:19 am
JayB wrote: Mon Aug 08, 2022 10:13 am I tried to buy some nominal Treasury bonds through my Fidelity brokerage online account yesterday as I have done numerous times in the past.
Yesterday? The market was closed on Sunday. That may have been the problem. The order was going to sit there until today.
Oops, I meant FRIDAY.
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

BBBob wrote: Mon Aug 08, 2022 10:10 am Thank you so much, Kevin and the rest of you folks. I am still trying to get my head around all the TIP nuances, and have three embarrassingly basic questions:

1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)

2. Does a YTM of .323 mean 0.323%

3. Is the "TIPS for Dummies" approach to simply go for the highest YTM at the desired maturity date?

Again...thank you all!!
Bob
It's the real YTM. And, yes, that's 0.323% (real).

For most maturities there's only 1. If there are more than one, some might be influenced by the coupons and others by the current adjusted principle
BBBob
Posts: 220
Joined: Tue Aug 11, 2015 12:25 pm

Re: Trading Treasuries (nominal and TIPS)

Post by BBBob »

Thanks, Jeff.
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

BBBob wrote: Mon Aug 08, 2022 10:34 am Thanks, Jeff.
I should add that I interpreted "desired maturity date" literally, meaning a specific date, such as Jan. 15 2027.

If you instead meant that you were comparing something like Jan, April, and July 2027, then that would get into seasonality. And in that case, you should either learn a bit about that, or else just ignore things like the July one yielding less than the April or January and assume that the market is efficiently accounting for the expected month-to-month variations in inflation.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

JayB wrote: Mon Aug 08, 2022 10:13 am This may have been asked about in this long thread before, and if so, I apologize in advance.

I tried to buy some nominal Treasury bonds through my Fidelity brokerage online account on Friday as I have done numerous times in the past. These were limit orders (the only kind Fidelity allows for these bonds) with the limit price pre-filled in by the bond purchase dialog, with apparently little or no room to alter that limit price (I've tried). At any rate, I had to submit the order THREE times in order to get a fill.

<snip>
Yes, something like this has happened to me a few times, but more often than not my Treasury orders have been executed within seconds. One thing I have done to speed things up is just cancel the order if it isn't filled in a couple of minutes, and re-enter it. That may not work if price is stale and the re-entered order is at the same price (which I've seen).

One poster mentioned that the Fidelity rep helping her had her just enter an order for a different but similar Treasury, so that might be another thing to try. There often are several Treasuries maturing on the same or close date; sometimes the yields are close, but sometimes they're not; I wouldn't buy one with a much lower yield. This is for nominals, not for TIPS.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

BBBob wrote: Mon Aug 08, 2022 10:10 am Thank you so much, Kevin and the rest of you folks. I am still trying to get my head around all the TIP nuances, and have three embarrassingly basic questions:

1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)

2. Does a YTM of .323 mean 0.323%

3. Is the "TIPS for Dummies" approach to simply go for the highest YTM at the desired maturity date?

Again...thank you all!!
Bob
I can answer a couple of these.
BBBob wrote: Mon Aug 08, 2022 10:10 am 1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)
It is real, but inflation is not factored into the yield calculation: only the settlement, maturity, price, and coupon rate. In other words, the yield is calculated in the same way as non-TIPs. So there are no assumptions about inflation in the quoted yield. The quoted yield moving forward (in the secondary market, for example) is also not affected by inflation. But if interest rates go up or down, the prevailing price will tend to move in the opposite direction and that will affect yield (as quoted in the secondary markets for that security; if you are holding to maturity your return will not be affected by movements in the security value). Note that here I am restricting myself to your question about POSTED yields. Your ACTUAL results will be affected by inflation (e.g. if you've bought a short term bond on the secondary market with a high inflation factor) and there are many other posts here that discuss that.
BBBob wrote: Mon Aug 08, 2022 10:10 am 2. Does a YTM of .323 mean 0.323%
It does in Fidelity's quotes, which omit the percent symbol.
BBBob wrote: Mon Aug 08, 2022 10:10 am 3. Is the "TIPS for Dummies" approach to simply go for the highest YTM at the desired maturity date?
I don't have a clear answer here. If pressed I think my frank answer would have to be that one should first educate oneself to the point where he no longer considers himself a dummy when it comes to the TIPs market. Reading the posts here will go a long way in that direction. I could also answer that the highest yield is always best if you know want a specific maturity and know that you will hold to maturity, but that would be something of a tautology.

EDIT: item 1 yields are real, not nominal. The relationship between the two can be confusing for TIPs newcomers. Thanks to Kevin M for explanations in following posts.
Last edited by MisterMister on Mon Aug 08, 2022 2:13 pm, edited 2 times in total.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Mon Aug 08, 2022 12:34 pm I can answer a couple of these.
BBBob wrote: Mon Aug 08, 2022 10:10 am 1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)
It is nominal, inflation is not factored into the yield calculation: only the settlement, maturity, price, and coupon rate. In other words, the yield is calculated in the same way as non-TIPs. So there are no assumptions about inflation in the quoted yield. The quoted yield moving forward (in the secondary market, for example) is also not affected by inflation. But if interest rates go up or down, the prevailing price will tend to move in the opposite direction and that will affect yield.
<snip>
Everything you say in the quoted paragraph is correct except the first bit (underlined). TIPS yield quotes are real yields (some TIPS funds publish nominal yield, which are much, much higher now that inflation is high).

Nominal yield to maturity for a TIPS cannot be calculated, because the future cash flows depend on the inflation adjustments, which we do not know ahead of time, other than the adjustments to the latest ref CPI (currently Sep 1). Yield to maturity is the constant discount rate that causes the discounted cash flows to equal the price, so we must know the cash flows to compute it.

We can talk about nominal returns of TIPS and compare them to real returns. You can have a negative real return and a positive nominal return. For example, for the 7/15/2023 TIPS that I bought on 6/8/2021 with a yield of -2.89% had a real return of -6.40% and a nominal return of +3.41% as of last Friday. If I hold to maturity, the real return will be close to the original yield, and the nominal return is unknown.

Also, one note on your last sentence. If the yield of a TIPS goes up or down, the yield will go down or up (not just tend to). I don't know what you mean by "interest rates", as there are many different interest rates, but only the TIPS yield is relevant to the TIPS price.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
squirrel1963
Posts: 1253
Joined: Wed Jun 21, 2017 10:12 am
Location: Portland OR area

Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

jeffyscott wrote: Mon Aug 08, 2022 10:23 am
BBBob wrote: Mon Aug 08, 2022 10:10 am Thank you so much, Kevin and the rest of you folks. I am still trying to get my head around all the TIP nuances, and have three embarrassingly basic questions:

1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)

2. Does a YTM of .323 mean 0.323%

3. Is the "TIPS for Dummies" approach to simply go for the highest YTM at the desired maturity date?

Again...thank you all!!
Bob
It's the real YTM. And, yes, that's 0.323% (real).

For most maturities there's only 1. If there are more than one, some might be influenced by the coupons and others by the current adjusted principle
I also look at the inflation factor, but for the most part I don't let that influence which one I pick. I'm not losing sleep over deflation.

All in all, I don't hugely care about the exact date, so usually I just pick the highest YTM within the whole year.

So to answer Bob question, it depends what matters to you, if the date is important go for highest yield on that sate, otherwise pick highest YTM within the desired year.

Some people look not just at YTM but also at coupon payments vs ask price, but really depends on what you want, I don't know if most bond buyers even look at that, sophisticated buyers definitely do.

#cruncher and Kevin are basically the sophisticated buyers and I think they look at things like SA yield, I have a huge amount of things to still learn.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
JayB
Posts: 659
Joined: Sat May 28, 2022 9:57 am

Re: Trading Treasuries (nominal and TIPS)

Post by JayB »

Kevin M wrote: Mon Aug 08, 2022 12:02 pm
JayB wrote: Mon Aug 08, 2022 10:13 am This may have been asked about in this long thread before, and if so, I apologize in advance.

I tried to buy some nominal Treasury bonds through my Fidelity brokerage online account on Friday as I have done numerous times in the past. These were limit orders (the only kind Fidelity allows for these bonds) with the limit price pre-filled in by the bond purchase dialog, with apparently little or no room to alter that limit price (I've tried). At any rate, I had to submit the order THREE times in order to get a fill.

<snip>
Yes, something like this has happened to me a few times, but more often than not my Treasury orders have been executed within seconds. One thing I have done to speed things up is just cancel the order if it isn't filled in a couple of minutes, and re-enter it. That may not work if price is stale and the re-entered order is at the same price (which I've seen).

One poster mentioned that the Fidelity rep helping her had her just enter an order for a different but similar Treasury, so that might be another thing to try. There often are several Treasuries maturing on the same or close date; sometimes the yields are close, but sometimes they're not; I wouldn't buy one with a much lower yield. This is for nominals, not for TIPS.

Kevin
Thanks, Kevin. In the past, I have sometimes tried canceling and then re-entering orders based on newly-refreshed quotes, but Fidelity seems to lock out the online bond trading after a few cancels in a row and I've had to call up to get things unlocked.

The specific issue I was trying to buy was offered at an outlier high yield (a 25 bp/yr. advantage for 8 yrs.) which was unavailable for nearby maturity dates. I feel fortunate to have gotten the higher yield; that's how I buy most bonds.
Last edited by JayB on Mon Aug 08, 2022 1:50 pm, edited 1 time in total.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Mon Aug 08, 2022 1:04 pm
MisterMister wrote: Mon Aug 08, 2022 12:34 pm I can answer a couple of these.
BBBob wrote: Mon Aug 08, 2022 10:10 am 1. Is the posted YTM real or nominal?
(I assume it is nominal, and that the inflation rate is assumed to stay constant for the remaining term. And I assume that If inflation goes down, the YTM goes down as well, but how much?)
It is nominal, inflation is not factored into the yield calculation: only the settlement, maturity, price, and coupon rate. In other words, the yield is calculated in the same way as non-TIPs. So there are no assumptions about inflation in the quoted yield. The quoted yield moving forward (in the secondary market, for example) is also not affected by inflation. But if interest rates go up or down, the prevailing price will tend to move in the opposite direction and that will affect yield.
<snip>
Everything you say in the quoted paragraph is correct except the first bit (underlined). TIPS yield quotes are real yields (some TIPS funds publish nominal yield, which are much, much higher now that inflation is high).

Nominal yield to maturity for a TIPS cannot be calculated, because the future cash flows depend on the inflation adjustments, which we do not know ahead of time, other than the adjustments to the latest ref CPI (currently Sep 1). Yield to maturity is the constant discount rate that causes the discounted cash flows to equal the price, so we must know the cash flows to compute it.

We can talk about nominal returns of TIPS and compare them to real returns. You can have a negative real return and a positive nominal return. For example, for the 7/15/2023 TIPS that I bought on 6/8/2021 with a yield of -2.89% had a real return of -6.40% and a nominal return of +3.41% as of last Friday. If I hold to maturity, the real return will be close to the original yield, and the nominal return is unknown.

Also, one note on your last sentence. If the yield of a TIPS goes up or down, the yield will go down or up (not just tend to). I don't know what you mean by "interest rates", as there are many different interest rates, but only the TIPS yield is relevant to the TIPS price.

Kevin
Thanks for your expert clarifications.

If a non-TIPs bond with the same, price, maturity and coupon as a TIPs bond, that quoted yield value would be the same as for the TIPS bond and for that non-TIPS bond it would be a nominal yield, yes? But for TIPS it is real yield? I think I know the answer and the relationship here but perhaps you can elaborate my benefit and others.

As far as interest rates, what I meant was that interest rates and rate expectations that drive price direction on non-TIPs bond prices also influence prices for TIPS. Yes, there are many interest rates and I admit I'm not sure which ones might specifically affect TIPs and not non-TIPs or vice-versa. Here, I was referring to the secondary market prices for existing TIPs and not new TIPs issues. Maybe you can help here, too.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Mon Aug 08, 2022 1:39 pm If a non-TIPs bond with the same, price, maturity and coupon as a TIPs bond, that quoted yield value would be the same as for the TIPS bond and for that non-TIPS bond it would be a nominal yield, yes? But for TIPS it is real yield? I think I know the answer and the relationship here but perhaps you can elaborate my benefit and others.
Yes. In that case, the breakeven inflation rate (BEI = nominal yield minus TIPS yield) would be 0%, which roughly means that the market expects inflation to be 0%.
MisterMister wrote: Mon Aug 08, 2022 1:39 pm As far as interest rates, what I meant was that interest rates and rate expectations that drive price direction on non-TIPs bond prices also influence prices for TIPS. Yes, there are many interest rates and I admit I'm not sure which ones might specifically affect TIPs and not non-TIPs or vice-versa. Here, I was referring to the secondary market prices for existing TIPs and not new TIPs issues. Maybe you can help here, too.
What affects TIPS prices are real interest rates. The easiest way to determine real interest rates is to look at TIPS yields. So the applicable interest rate is the TIPS yield.

Nominal and real yields don't necessarily move together, which is why the BEI changes over time.

New issue TIPS will tend to have about the same yield as similar secondary TIPS; the same factors that affect secondary TIPS yields affect new issue TIPS yields.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
BBBob
Posts: 220
Joined: Tue Aug 11, 2015 12:25 pm

Re: Trading Treasuries (nominal and TIPS)

Post by BBBob »

Once again, thank you to all of you for helping me. I dipped my toes in TIPS today, and could not have done it without your generous guidance. And thank you one last time, Kevin, for sharing your personal examples; and analyses; it was invaluable and required a great deal of openness on your part. I would never have tackled this without you folks.
Best regards,
Bob
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

I thought I already posted this, but can't find it. Maybe I posted in the wrong thread, or just didn't get around to clicking submit. Anyway ...

Saw that short-term TIPS ETF prices were up today (yields down), so assumed short-term TIPS yields would be down, but they actually are up. The quoted yield for the 4/15/2023 (0.68 years) is +0.10%. Note however that the seasonally-adjusted yield is -0.66%.

The 1/15/2023 is up to -0.388%, but the large/small spread is a bit large, with the ask for min qty 1 = -0.469%, so a spread of about 8 basis points (compared to 4-5 that has been typical for me lately).

Kevin
If I make a calculation error, #Cruncher probably will let me know.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

#Cruncher wrote: Mon Aug 08, 2022 7:37 am Reader Alert: This post gets "into the weeds" of calculating returns. Most readers of this thread will probably want to skip it. :wink:
Well I read it all with great interest. This is likely the most thorough and educational posting on yield calculation variations on BH.
#Cruncher wrote: Mon Aug 08, 2022 7:37 am And now I'll go one step further into the weeds and discuss how the Treasury computes YTM for bills that mature in more than 26 weeks. My jaw dropped when I first saw on page 2 of the instruction PDF that the calculation used a quadratic equation. But on reflection, I see that this is necessary to compute an "Investment Rate" that is comparable to the YTM quoted on Treasury bonds with coupons and without using trial-and-error iteration.
I had previously read the PDF you mentioned that describes the use of the quadratic equation. I understand the point about avoiding iterative calculations but I still wonder why that mattered enough to use this unorthodox approach.

Anyway, those of us who use spreadsheets and calculate yields take note: Fidelity quotes yields to six decimal places. If you want to match 5-6 of those decimal places, it's easy by using the right formula as #Cruncher shows.

Well, at least it's easy for everything but T-Bills > 6 months duration.

For those, Fidelity dutifully uses the Treasury-described quadratic equation rather than the traditional coupon yield calculation. Developing an Excel formula for that without using helper columns would be a somewhat daunting task (especially if you want to handle leap years precisely). The good news is, if you're happy with matching only about 3 decimal places of the yield percentage you can just use Yield or XIRR as #Cruncher shows.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Mon Aug 08, 2022 2:41 pm
#Cruncher wrote: Mon Aug 08, 2022 7:37 am Reader Alert: This post gets "into the weeds" of calculating returns. Most readers of this thread will probably want to skip it. :wink:
Well I read it all with great interest. This is likely the most thorough and educational posting on yield calculation variations on BH.
#Cruncher wrote: Mon Aug 08, 2022 7:37 am And now I'll go one step further into the weeds and discuss how the Treasury computes YTM for bills that mature in more than 26 weeks. My jaw dropped when I first saw on page 2 of the instruction PDF that the calculation used a quadratic equation. But on reflection, I see that this is necessary to compute an "Investment Rate" that is comparable to the YTM quoted on Treasury bonds with coupons and without using trial-and-error iteration.
I had previously read the PDF you mentioned that describes the use of the quadratic equation. I understand the point about avoiding iterative calculations but I still wonder why that mattered enough to use this unorthodox approach.

Anyway, those of us who use spreadsheets and calculate yields take note: Fidelity quotes yields to six decimal places. If you want to match 5-6 of those decimal places, it's easy by using the right formula as #Cruncher shows.

Well, at least it's easy for everything but T-Bills > 6 months duration.

For those, Fidelity dutifully uses the Treasury-described quadratic equation rather than the traditional coupon yield calculation. Developing an Excel formula for that without using helper columns would be a somewhat daunting task (especially if you want to handle leap years precisely). The good news is, if you're happy with matching only about 3 decimal places of the yield percentage you can just use Yield or XIRR as #Cruncher shows.
Treasury only publishes yields to 3 decimal places. I have a Treasury auction spreadsheet in which I've been using various yield calculations for several years. For bills of 26 week maturity or less, I have the Treasury formula in my spreadsheet, and it matches the YIELD calculation (with frequency = 1) to the published 3 decimal places. However, you have to use the actual days in the year (365 or 366) for the Treasury calculation to work correctly.

I never bothered with the quadratic equation (too complicated), and YIELD with freq = 2 matches published Treasury yield. Good enough for me.

Note that in Fidelity's transaction download, they only provide price to 2 digits, but they use more digits to calculate amount and yield, so my yields are a bit off when I use the downloaded prices to calculate yield.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Mon Aug 08, 2022 2:28 pm I thought I already posted this, but can't find it. Maybe I posted in the wrong thread, or just didn't get around to clicking submit. Anyway ...

Saw that short-term TIPS ETF prices were up today (yields down), so assumed short-term TIPS yields would be down, but they actually are up. The quoted yield for the 4/15/2023 (0.68 years) is +0.10%. Note however that the seasonally-adjusted yield is -0.66%.

The 1/15/2023 is up to -0.388%, but the large/small spread is a bit large, with the ask for min qty 1 = -0.469%, so a spread of about 8 basis points (compared to 4-5 that has been typical for me lately).

Kevin
Also up: both the 13- and 26- week bills auctioned today. The 26-week bill came in at 3.13%, the highest so far this year. Less than 4 weeks ago the 52-week bill auctioned for less.
User avatar
Electron
Posts: 2656
Joined: Sat Mar 10, 2007 7:46 pm

Re: Trading Treasuries (nominal and TIPS)

Post by Electron »

Attached is a list of the 13 week Treasury bills I purchased at auction this year. The investment rate started out at 0.386% and then increased almost every week to 2.633% as of today.

In comparing these investments with Vanguard Treasury Money Market fund, I believe my returns have been only slightly higher on average than the fund.

I also purchased one Treasury note at auction and two Treasury notes in the secondary market. All of this was done as a learning experience and for fun.

Buying and managing the Treasury bills at Vanguard did take a little effort. There were also many emails involved including multiple notices about securities being redeemed.

At this point, I plan to end the purchases at least for the time being. I learned a lot from this thread and also had some fun. :happy

Code: Select all

Settle    Maturity   Term     Rate     CUSIP

02/25/22  05/26/22  13 Week  0.386%  912796Q36
03/03/22  06/02/22  13 Week  0.365%  912796Q44
03/17/22  06/16/22  13 Week  0.457%  912796J42
03/31/22  06/30/22  13 Week  0.614%  912796R50
04/07/22  07/07/22  13 Week  0.680%  912796R68
04/14/22  07/14/22  13 Week  0.798%  912796K57
04/21/22  07/21/22  13 Week  0.874%  912796S42
04/28/22  07/28/22  13 Week  0.904%  912796S59
05/05/22  08/04/22  13 Week  0.925%  912796S67
05/12/22  08/11/22  13 Week  0.915%  912796L64
05/19/22  08/18/22  13 Week  1.067%  912796T41

Code: Select all

05/26/22  08/25/22  13 Week  1.078%  912796T58
06/02/22  09/01/22  13 Week  1.139%  912796T66
06/09/22  09/08/22  13 Week  1.251%  912796M71
06/16/22  09/15/22  13 Week  1.670%  912796U49
06/23/22  09/22/22  13 Week  1.700%  912796U56
06/30/22  09/29/22  13 Week  1.782%  912796U64
07/07/22  10/06/22  13 Week  1.885%  912796M89
07/14/22  10/13/22  13 Week  2.151%  912796V55
07/21/22  10/20/22  13 Week  2.520%  912796V63
07/28/22  10/27/22  13 Week  2.571%  912796V71
08/04/22  11/03/22  13 Week  2.541%  912796N96
08/11/22  11/10/22  13 Week  2.633%  912796W54
Enjoying the Outdoors
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

I have been out of the loop for almost a month while I was in Europe without internet.
Upon returning today I noticed an interesting trend.
Compared with before I left, when I made several TIPS purchases, yields have increased for shorter term TIPS and decreased for longer term ones.
I wonder if that may have something to do with plummeting gasoline prices and thus anticipated decreased inflation in the short term. But I have no idea really.
The longest term TIPS that I purchased, maturing in 4/2028, has increased in value over 1% since I bought it about a month ago. I only went out that long because the yield was quite a bit higher when I purchased it than the 4/2027 maturity TIPS..
I am wondering whether it would be worth selling and using the proceeds to buy more shorter term issues.

Thoughts?
nonnie
Posts: 3010
Joined: Thu Mar 13, 2008 8:05 pm

Re: Trading Treasuries (nominal and TIPS)

Post by nonnie »

JayB wrote: Mon Aug 08, 2022 1:36 pm
Kevin M wrote: Mon Aug 08, 2022 12:02 pm
JayB wrote: Mon Aug 08, 2022 10:13 am This may have been asked about in this long thread before, and if so, I apologize in advance.

I tried to buy some nominal Treasury bonds through my Fidelity brokerage online account on Friday as I have done numerous times in the past. These were limit orders (the only kind Fidelity allows for these bonds) with the limit price pre-filled in by the bond purchase dialog, with apparently little or no room to alter that limit price (I've tried). At any rate, I had to submit the order THREE times in order to get a fill.

<snip>
Yes, something like this has happened to me a few times, but more often than not my Treasury orders have been executed within seconds. One thing I have done to speed things up is just cancel the order if it isn't filled in a couple of minutes, and re-enter it. That may not work if price is stale and the re-entered order is at the same price (which I've seen).

One poster mentioned that the Fidelity rep helping her had her just enter an order for a different but similar Treasury, so that might be another thing to try. There often are several Treasuries maturing on the same or close date; sometimes the yields are close, but sometimes they're not; I wouldn't buy one with a much lower yield. This is for nominals, not for TIPS.

Kevin
Thanks, Kevin. In the past, I have sometimes tried canceling and then re-entering orders based on newly-refreshed quotes, but Fidelity seems to lock out the online bond trading after a few cancels in a row and I've had to call up to get things unlocked.

The specific issue I was trying to buy was offered at an outlier high yield (a 25 bp/yr. advantage for 8 yrs.) which was unavailable for nearby maturity dates. I feel fortunate to have gotten the higher yield; that's how I buy most bonds.
On Thursday and Friday I had two separate Fidelity reps tell me that the website is "wonky" because of the heavy traffic. I had bought some CDs that weren't going to settle for a week or so and had wanted to cancel the order and buy Treasuries. The rep warned me that they order could fill "while we're speaking." Huh? I had been told by one rep that they wouldn't fill until the settlement date but the second rep said once they are all subscribed (not sure that's the right word) they could fill immediately before the settlement date. I cancelled and bought Treasuries.

I had the same experience with both reps, though. I would try to buy--Treasuries-- and the order wouldn't go through, I'd try again and finally the rep said they'd buy it for me and waive the commission. Once, the rep even had a problem but we finally got the purchases made.
User avatar
squirrel1963
Posts: 1253
Joined: Wed Jun 21, 2017 10:12 am
Location: Portland OR area

Re: Trading Treasuries (nominal and TIPS)

Post by squirrel1963 »

protagonist wrote: Mon Aug 08, 2022 7:47 pm I have been out of the loop for almost a month while I was in Europe without internet.
Upon returning today I noticed an interesting trend.
Compared with before I left, when I made several TIPS purchases, yields have increased for shorter term TIPS and decreased for longer term ones.
I wonder if that may have something to do with plummeting gasoline prices and thus anticipated decreased inflation in the short term. But I have no idea really.
The longest term TIPS that I purchased, maturing in 4/2028, has increased in value over 1% since I bought it about a month ago. I only went out that long because the yield was quite a bit higher when I purchased it than the 4/2027 maturity TIPS..
I am wondering whether it would be worth selling and using the proceeds to buy more shorter term issues.

Thoughts?
Yes I have noticed pretty dramatic changes in the shape of the real yield curve. Yields have also changed a lot since last Friday.

I don't know if it's worth selling to trade for a different maturity, it depends what you are trying to do, get best yield, replicate a fund at zero ER or do duration matching.

I fear though I've run out of my knowledge here, I hope our resident SMEs and OP will comment on this. This is interesting idea i think, for nominal Treasuries, I've sold some 3+ years to buy shorter duration to reduce interest rate risk, which is market timing I guess no? I do not do market timing with TIPS and certainly not with stocks but I've done a few times with nominal Treasuries and munis, not that I'm an SME, mind me. :oops:
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
protagonist
Posts: 9242
Joined: Sun Dec 26, 2010 11:47 am

Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

squirrel1963 wrote: Tue Aug 09, 2022 1:05 am
protagonist wrote: Mon Aug 08, 2022 7:47 pm I have been out of the loop for almost a month while I was in Europe without internet.
Upon returning today I noticed an interesting trend.
Compared with before I left, when I made several TIPS purchases, yields have increased for shorter term TIPS and decreased for longer term ones.
I wonder if that may have something to do with plummeting gasoline prices and thus anticipated decreased inflation in the short term. But I have no idea really.
The longest term TIPS that I purchased, maturing in 4/2028, has increased in value over 1% since I bought it about a month ago. I only went out that long because the yield was quite a bit higher when I purchased it than the 4/2027 maturity TIPS..
I am wondering whether it would be worth selling and using the proceeds to buy more shorter term issues.

Thoughts?
Yes I have noticed pretty dramatic changes in the shape of the real yield curve. Yields have also changed a lot since last Friday.

I don't know if it's worth selling to trade for a different maturity, it depends what you are trying to do, get best yield, replicate a fund at zero ER or do duration matching.

I fear though I've run out of my knowledge here, I hope our resident SMEs and OP will comment on this. This is interesting idea i think, for nominal Treasuries, I've sold some 3+ years to buy shorter duration to reduce interest rate risk, which is market timing I guess no? I do not do market timing with TIPS and certainly not with stocks but I've done a few times with nominal Treasuries and munis, not that I'm an SME, mind me. :oops:
Thanks, squirrel.
bpg1234
Posts: 405
Joined: Fri Jun 24, 2011 6:53 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bpg1234 »

Kevin M wrote: Mon Aug 08, 2022 1:04 pm We can talk about nominal returns of TIPS and compare them to real returns. You can have a negative real return and a positive nominal return. For example, for the 7/15/2023 TIPS that I bought on 6/8/2021 with a yield of -2.89% had a real return of -6.40% and a nominal return of +3.41% as of
Kevin,

Haven't purchased any 2023 TIPS rung yet but have been watching the 7/15/2023 one as I have seen you have purchased this several times over the past year as real yields increased. Today I saw it was close to 0% real so what is your take in buying say $10K to $20K at this point? Thanks as usual.

bpg
User avatar
You Know What I Mean
Posts: 311
Joined: Tue Mar 06, 2018 8:27 am

Re: Trading Treasuries (nominal and TIPS)

Post by You Know What I Mean »

Kevin M wrote: Thu Aug 04, 2022 3:06 pm
prettybogle wrote: Thu Aug 04, 2022 2:44 pm Thanks to Kevin and this thread, we started buying treasury bills and also brokered cd's in our Vanguard brokerage account. We are confused how to review these positions- I mean we see them but we are having difficulty understanding data such as yield/interest rate. For example, we placed an order to buy 1 month treasury bill in auction. We received email today that this order is fullfilled and $100 face value bill was bought for $99.84. Then we had to do calculation to figure out effective interest rate we got. Is there a easier way of knowing this data without us doing calculations?
Your order confirmation will show the yield, or maybe for bills the discount rate. The latter is what Treasury refers to as the "high rate".

You can look up the Treasury auction results to see the yield (investment rate). Select the term of interest (4-week), and drill down to find your auction, then open the Competitive PDF. The yield for your bill is 2.143%. The high rate is 2.110%, so if Vanguard shows that as discount rate on the order confirmation, you know your yield is a little higher than that.

You also can calculate yield with the YIELD function. I can go into this in more detail if you know how to use a spreadsheet.

Kevin
Thanks very much for that link (and all that you do!).

At yesterday's auction I bought $10K of the 91-Day Bill @ 99.3478 and $90K of the 182-Day Bill @ 98.4631. I was wondering about the actual yields, and that link provided the answers: 2.633% and 3.130%.
"Well, she was just seventeen, You Know What I Mean, and the way she looked... was way beyond compare."
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

bpg1234 wrote: Tue Aug 09, 2022 9:56 am
Kevin M wrote: Mon Aug 08, 2022 1:04 pm We can talk about nominal returns of TIPS and compare them to real returns. You can have a negative real return and a positive nominal return. For example, for the 7/15/2023 TIPS that I bought on 6/8/2021 with a yield of -2.89% had a real return of -6.40% and a nominal return of +3.41% as of
Kevin,

Haven't purchased any 2023 TIPS rung yet but have been watching the 7/15/2023 one as I have seen you have purchased this several times over the past year as real yields increased. Today I saw it was close to 0% real so what is your take in buying say $10K to $20K at this point? Thanks as usual.

bpg
I bought more today, for both my Fidelity IRA and a couple of family member's taxable Vanguard accounts. Paid a tad more at Vanguard because TIPS prices were increasing as I placed the orders.

I first looked at the 4/15/2023, but the large/small-qty yield spread was still larger than normal, at about 8 bps. The large/small spread for the 7/15/2023 was only a couple of basis points. And, the yield curve is very steep out to 7/15/2023.

I paid 100.380, which is a yield of -0.03%, seasonally adjusted -0.12%, which is 15 bps higher SA yield than last purchase on 7/15. I'm pretty happy that we're close to 0% real on an 11-month TIPS.

As with my last purchase of a TIPS, the total amount paid for quantity 10, 12,658.37, was higher than my last purchase at 12,565.90 because the inflation adjustment magnitude was larger than the real price decrease (only 3.34 in accrued interest).

On a related note, all of our TIPS will receive an inflation adjustment of 1.37% for the month of August, since that was the increase in non-seasonally adjusted CPI for May. This is an annualized rate of 17.79%. This is quite high, and is why I'm paying more for TIPS purchases even when the real price declines. Tomorrow when the July CPI is released, we will know our inflation adjustment for September (based on CPI change from June to July).

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Fidelity saved search results into spreadsheet

Post by Kevin M »

Below are some screenshots and description of my process to run saved fixed income searches at Fidelity, download them, and import them into a Google Sheets sheet.

After navigating to the Fidelity Fixed income, bonds and CDs screen, I click on Saved Searches, then click Run next to the search I want to run.

Image

In this case I'll select TIPS, since I download TIPS every day. After selecting it, I see the search results:

Image

I click the Download Data to Spreadsheet link at the far left, just above the search results. I select my existing Fidelity TIPS file in my downloads folder, and download to this file.

I then open the sheet I want to import into, which in this case is FidoTIPS. I make sure the first cell I want to import to is selected (green background), click File -> Import -> Upload, then I drag the file from the Firefox file downloaded icon to the Drag file here section of the import dialog:

Image

I change the import file location from the default, replace spreadsheet, to replace data at selected cell, then click Import data:

Image

(sorry for the dark background)

After the import, I see the results.

Image

I check the download date and time to make sure I imported the correct file. The download date and time is included in text at the bottom of the downloaded results, and can be extracted with some spreadsheet formulas.

Note that there are other columns to the right of the imported data in which I calculate or retrieve values of interest, such as coupon rate, yield %, calculated yield, ref CPI, and dated date ref CPI for each TIPS. These values will be used in other sheets for other calculations.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
bpg1234
Posts: 405
Joined: Fri Jun 24, 2011 6:53 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bpg1234 »

Kevin M wrote: Tue Aug 09, 2022 2:16 pm
bpg1234 wrote: Tue Aug 09, 2022 9:56 am
Kevin M wrote: Mon Aug 08, 2022 1:04 pm We can talk about nominal returns of TIPS and compare them to real returns. You can have a negative real return and a positive nominal return. For example, for the 7/15/2023 TIPS that I bought on 6/8/2021 with a yield of -2.89% had a real return of -6.40% and a nominal return of +3.41% as of
Kevin,

Haven't purchased any 2023 TIPS rung yet but have been watching the 7/15/2023 one as I have seen you have purchased this several times over the past year as real yields increased. Today I saw it was close to 0% real so what is your take in buying say $10K to $20K at this point? Thanks as usual.

bpg
I bought more today, for both my Fidelity IRA and a couple of family member's taxable Vanguard accounts. Paid a tad more at Vanguard because TIPS prices were increasing as I placed the orders.

I first looked at the 4/15/2023, but the large/small-qty yield spread was still larger than normal, at about 8 bps. The large/small spread for the 7/15/2023 was only a couple of basis points. And, the yield curve is very steep out to 7/15/2023.

I paid 100.380, which is a yield of -0.03%, seasonally adjusted -0.12%, which is 15 bps higher SA yield than last purchase on 7/15. I'm pretty happy that we're close to 0% real on an 11-month TIPS.

As with my last purchase of a TIPS, the total amount paid for quantity 10, 12,658.37, was higher than my last purchase at 12,565.90 because the inflation adjustment magnitude was larger than the real price decrease (only 3.34 in accrued interest).

On a related note, all of our TIPS will receive an inflation adjustment of 1.37% for the month of August, since that was the increase in non-seasonally adjusted CPI for May. This is an annualized rate of 17.79%. This is quite high, and is why I'm paying more for TIPS purchases even when the real price declines. Tomorrow when the July CPI is released, we will know our inflation adjustment for September (based on CPI change from June to July).

Kevin
Interesting. So if the 4/15/2023 large/small spread is now only 2bp more than the large/small spread of the 7/15/2023 would it be better to go with the 4/15 with the real yield being higher (right about 0 now) versus the 7/15/2023 which is down to around -.095?
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

bpg1234 wrote: Tue Aug 09, 2022 3:14 pm Interesting. So if the 4/15/2023 large/small spread is now only 2bp more than the large/small spread of the 7/15/2023 would it be better to go with the 4/15 with the real yield being higher (right about 0 now) versus the 7/15/2023 which is down to around -.095?
Not necessarily. With these short terms, the seasonal adjustment can be significant, and is more so for the 4/15 because it's further from today than the 7/15. Here are the ask and seasonally-adjusted (SA) ask yields from my download:

4/15/2023 0.07% -0.70%

7/15/2023 -0.06% -0.15%

Here it is graphically:

Image

So even though the ask yield curve is inverted from 4/15/23 to 7/15/23, the SA yield curve is quite steep in this range, at 220 basis points per year slope. I use the SA yields for my TIPS purchase decisions.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
billyt
Posts: 1111
Joined: Wed Aug 06, 2008 9:57 am

Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Looks like month on month CPI was 0%, so no September bump for our recently purchased TIPS!
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

^Actually it's less than zero (barely).
For July, the BLS set the CPI-U index at 296.276, down 0.01% from June’s number of 296.311.
https://tipswatch.com/

That's non-seasonally adjusted inflation, which is what is used to adjust principal balances of TIPS (and set future interest rates for I Bonds).
billyt
Posts: 1111
Joined: Wed Aug 06, 2008 9:57 am

Re: Trading Treasuries (nominal and TIPS)

Post by billyt »

Yikes deflation, the death knell for TIPS! :happy
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Doc
Posts: 10606
Joined: Sat Feb 24, 2007 12:10 pm
Location: Two left turns from Larry

Re: Trading Treasuries (nominal and TIPS)

Post by Doc »

Kevin M wrote: Wed Aug 10, 2022 1:34 pm I just bought 10 more of the 1/15/2023 ...
If one is rolling Treasuries either TIPS or nominals and the settlement dates don't match so you can't use auctions for both is it better to sell on secondary and buy at auction or vice versa?
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
bluesky50
Posts: 73
Joined: Tue Jan 09, 2018 10:05 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bluesky50 »

Hi, Kevin:

I have set aside $50K to buy October 5-year TIPS at auction which has tentative settlement date of 10/20/2022 according to auction schedule.

If I buy 8-weeks T-bills today (912796YD5) that has maturity date 10/11/2022, does it give me enough time to have money from this T-bill settlement to buy 10/13 TIPS at auction? Or am I cutting to close?
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

bluesky50 wrote: Wed Aug 10, 2022 2:03 pm Hi, Kevin:

I have set aside $50K to buy October 5-year TIPS at auction which has tentative settlement date of 10/20/2022 according to auction schedule.

If I buy 8-weeks T-bills today (912796YD5) that has maturity date 10/11/2022, does it give me enough time to have money from this T-bill settlement to buy 10/13 TIPS at auction? Or am I cutting to close?
Sure, no problem. That auction doesn't settle until 10/31/2022 (the auction date is 10/20), so you have way more than enough leeway. I think it actually is fine as long as the money is in your settlement fund by the settlement date.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
bluesky50
Posts: 73
Joined: Tue Jan 09, 2018 10:05 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bluesky50 »

Kevin M wrote: Wed Aug 10, 2022 2:12 pm
bluesky50 wrote: Wed Aug 10, 2022 2:03 pm Hi, Kevin:

I have set aside $50K to buy October 5-year TIPS at auction which has tentative settlement date of 10/20/2022 according to auction schedule.

If I buy 8-weeks T-bills today (912796YD5) that has maturity date 10/11/2022, does it give me enough time to have money from this T-bill settlement to buy 10/13 TIPS at auction? Or am I cutting to close?
Sure, no problem. That auction doesn't settle until 10/31/2022 (the auction date is 10/20), so you have way more than enough leeway. I think it actually is fine as long as the money is in your settlement fund by the settlement date.

Kevin
Thank you very much, Kevin!
bpg1234
Posts: 405
Joined: Fri Jun 24, 2011 6:53 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bpg1234 »

Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
Kevin,
Any thoughts on potentially why the -0.01% CPI change boosted TIPS yields?
bpg
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

bluesky50 wrote: Wed Aug 10, 2022 2:19 pm
Kevin M wrote: Wed Aug 10, 2022 2:12 pm
bluesky50 wrote: Wed Aug 10, 2022 2:03 pm Hi, Kevin:

I have set aside $50K to buy October 5-year TIPS at auction which has tentative settlement date of 10/20/2022 according to auction schedule.

If I buy 8-weeks T-bills today (912796YD5) that has maturity date 10/11/2022, does it give me enough time to have money from this T-bill settlement to buy 10/13 TIPS at auction? Or am I cutting to close?
Sure, no problem. That auction doesn't settle until 10/31/2022 (the auction date is 10/20), so you have way more than enough leeway. I think it actually is fine as long as the money is in your settlement fund by the settlement date.

Kevin
Thank you very much, Kevin!
Yes, there's plenty of time. Although, at Fidelity I have not been able to place an order for a treasury, even one that settles days out, unless I have money currently available to trade. Maybe having a margin account (I don't) makes a difference. On a security maturing on 10/11 I think you will have a credit for 50K available on that day for reinvesting (but certainly no later than the next day). In this case that is indeed plenty of time because the order for the TIPs couldn't be placed until October 13 after the TIPs announcement.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

bpg1234 wrote: Wed Aug 10, 2022 2:29 pm
Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
Kevin,
Any thoughts on potentially why the -0.01% CPI change boosted TIPS yields?
bpg
My thoughts are that since we know that the September inflation adjustment will be slightly negative, and the market is not expecting high inflation from Oct 1 ref CPI date through the Jan 15 2022 reference CPI date (which will depend on August - November 2022 inflation), demand for short-term TIPS is lower, resulting in lower price and higher yield.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
jeffyscott
Posts: 13438
Joined: Tue Feb 27, 2007 8:12 am

Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

Kevin M wrote: Wed Aug 10, 2022 2:49 pm
bpg1234 wrote: Wed Aug 10, 2022 2:29 pm
Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
Kevin,
Any thoughts on potentially why the -0.01% CPI change boosted TIPS yields?
bpg
My thoughts are that since we know that the September inflation adjustment will be slightly negative, and the market is not expecting high inflation from Oct 1 ref CPI date through the Jan 15 2022 reference CPI date (which will depend on August - November 2022 inflation), demand for short-term TIPS is lower, resulting in lower price and higher yield.

Kevin
Apparently the actual reported inflation was less than what "the market" was expecting. So that makes September's inflation adjustments less than what the market had been expecting them to be.

A few TIPS prices (2026-2028) were up slightly, based on WSJ quotes.
silvergga
Posts: 270
Joined: Tue Mar 06, 2007 6:58 pm

Re: Trading Treasuries (nominal and TIPS)

Post by silvergga »

In Fidelity, for TIPs and nominal trading (not new issue), I often don't see a small min ask quantity (i.e. 1 to 10 = $1k-$10k), is that true? Or did I miss something?
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

silvergga wrote: Wed Aug 10, 2022 3:24 pm In Fidelity, for TIPs and nominal trading (not new issue), I often don't see a small min ask quantity (i.e. 1 to 10 = $1k-$10k), is that true? Or did I miss something?
You missed something. Look at the "depth of book" chart. Look for a quote like this nnnnn(1). That is the quantity one price. Often there will be quotes for qtys 25, 100, 1, and sometimes others. The quote you want is the want where the number in parentheses is the largest number that is equal to or smaller than the quantity as you want. NOTE: Fidelity will generally fill in the right price for you based on the quantity of your order.

On rare occasions you may not see a quantity one quote but that is generally temporary.
Last edited by MisterMister on Wed Aug 10, 2022 3:35 pm, edited 4 times in total.
bpg1234
Posts: 405
Joined: Fri Jun 24, 2011 6:53 pm

Re: Trading Treasuries (nominal and TIPS)

Post by bpg1234 »

jeffyscott wrote: Wed Aug 10, 2022 3:16 pm
Kevin M wrote: Wed Aug 10, 2022 2:49 pm
bpg1234 wrote: Wed Aug 10, 2022 2:29 pm
Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
Kevin,
Any thoughts on potentially why the -0.01% CPI change boosted TIPS yields?
bpg
My thoughts are that since we know that the September inflation adjustment will be slightly negative, and the market is not expecting high inflation from Oct 1 ref CPI date through the Jan 15 2022 reference CPI date (which will depend on August - November 2022 inflation), demand for short-term TIPS is lower, resulting in lower price and higher yield.

Kevin
Apparently the actual reported inflation was less than what "the market" was expecting. So that makes September's inflation adjustments less than what the market had been expecting them to be.

A few TIPS prices (2026-2028) were up slightly, based on WSJ quotes.
I have some existing 2024-2026 rungs purchased on the secondary market that I planned to buy some more. Their yield actually increased a wee bit today. The secondary market purchases in general still concern me some since my purchase prices included prior inflation adjustments so interested in thoughts on continuing as planned.
BBBob
Posts: 220
Joined: Tue Aug 11, 2015 12:25 pm

Re: Trading Treasuries (nominal and TIPS)

Post by BBBob »

Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
I'm trying to understand the nuances of TIPS. If the market is expecting inflation to go down over the next few months, i assume the value of TIPS certificates bought within the last week will decline towards face value if the market is correct, so where is the incentive to hold early 2023 maturities bought last week? Is it just a play against the market's opinion?
Last edited by BBBob on Wed Aug 10, 2022 3:44 pm, edited 1 time in total.
silvergga
Posts: 270
Joined: Tue Mar 06, 2007 6:58 pm

Re: Trading Treasuries (nominal and TIPS)

Post by silvergga »

MisterMister wrote: Wed Aug 10, 2022 3:28 pm
silvergga wrote: Wed Aug 10, 2022 3:24 pm In Fidelity, for TIPs and nominal trading (not new issue), I often don't see a small min ask quantity (i.e. 1 to 10 = $1k-$10k), is that true? Or did I miss something?
You missed something. Look at the "depth of book" chart. Look for a quote like this nnnnn(1). That is the quantity one price. Often there will be quotes for qtys 25, 100, 1, and sometimes others. The quote you want is the want where the number in parentheses is the largest number that is equal to or smaller than the quantity as you want. NOTE: Fidelity will generally fill in the right price for you based on the quantity of your order.

On rare occasions you may not see a quantity one quote but that is generally temporary.
Thanks. Got it. I think Fidelity is showing 50000(500) because that quote is for the best price of the same issue. I should look at depth of books because I don't do $500,000k a purchase :D

Does Fidelity have a filter to let you specify "X" in number(X). There is a selection but I don't think it is filtering what I want it to filter.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

silvergga wrote: Wed Aug 10, 2022 3:40 pm
MisterMister wrote: Wed Aug 10, 2022 3:28 pm
silvergga wrote: Wed Aug 10, 2022 3:24 pm In Fidelity, for TIPs and nominal trading (not new issue), I often don't see a small min ask quantity (i.e. 1 to 10 = $1k-$10k), is that true? Or did I miss something?
You missed something. Look at the "depth of book" chart. Look for a quote like this nnnnn(1). That is the quantity one price. Often there will be quotes for qtys 25, 100, 1, and sometimes others. The quote you want is the want where the number in parentheses is the largest number that is equal to or smaller than the quantity as you want. NOTE: Fidelity will generally fill in the right price for you based on the quantity of your order.

On rare occasions you may not see a quantity one quote but that is generally temporary.
Thanks. Got it. I think Fidelity is showing 50000(500) because that quote is for the best price of the same issue. I should look at depth of books because I don't do $500,000k a purchase :D

Does Fidelity have a filter to let you specify "X" in number(X). There is a selection but I don't think it is filtering what I want it to filter.
Not through any means I know about. But you can put a quantity in when you order and Fidelity will fill in the best price for that quantity. If you don't like the price you don't have to enter the order.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

BBBob wrote: Wed Aug 10, 2022 3:39 pm
Kevin M wrote: Wed Aug 10, 2022 1:34 pm The -0.01% CPI change seems to have boosted TIPS yields, especially at the short end. I just bought 10 more of the 1/15/2023 at 100.020 for a positive ask yield of 0.08%, but the SA ask still was negative at -0.84% (-0.78% for min qty 100, so the large/small-qty spread was about 6 basis points).

The seasonally-adjusted BEI considering the known 10/1/2022 ref CPI value is 2.97%, so it appears that the market is expecting about 3% inflation (annualized) between Oct 1 2022 and Jan 15 2023.

The shortest maturity with a positive SA ask yield is the 1/15/2024 (1.4 years) with ask yield = 0.35% and SA ask = 0.08%.

Looking at the longest maturity I own, 4/15/2027, the ask yield at 0.27% (SA 0.15%) is lower than the 0.49% (0.43% SA) for my 06/17/2022 purchase.

Kevin
I'm trying to understand the nuances of TIPS. If the market is expecting inflation to go down over the next few months, i assume the value of TIPS certificates bought within the last week will decline towards face value if the market is correct, so where is the incentive to hold early 2023 maturities bought last week? Is it just a play against the market's opinion?
Different people have different reasons. Since my intent was to be about 50% in TIPS with new fixed income purchases, and I am well below that at this point, I need to keep buying TIPS to stick with that plan. If reference CPI increases by more than about 3% annualized between Oct 1 2022 Jan 15 2023, the 1/15/2023 TIPS will earn more, and vice versa.

The yield for the shorter-term TIPS bought last week are higher this week, so there is even more incentive to hold TIPS bought at lower yields--at least that's the way I see it. And, buying more increases my average yield for that maturity.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Wed Aug 10, 2022 3:42 pm
silvergga wrote: Wed Aug 10, 2022 3:40 pm
MisterMister wrote: Wed Aug 10, 2022 3:28 pm
silvergga wrote: Wed Aug 10, 2022 3:24 pm In Fidelity, for TIPs and nominal trading (not new issue), I often don't see a small min ask quantity (i.e. 1 to 10 = $1k-$10k), is that true? Or did I miss something?
You missed something. Look at the "depth of book" chart. Look for a quote like this nnnnn(1). That is the quantity one price. Often there will be quotes for qtys 25, 100, 1, and sometimes others. The quote you want is the want where the number in parentheses is the largest number that is equal to or smaller than the quantity as you want. NOTE: Fidelity will generally fill in the right price for you based on the quantity of your order.

On rare occasions you may not see a quantity one quote but that is generally temporary.
Thanks. Got it. I think Fidelity is showing 50000(500) because that quote is for the best price of the same issue. I should look at depth of books because I don't do $500,000k a purchase :D

Does Fidelity have a filter to let you specify "X" in number(X). There is a selection but I don't think it is filtering what I want it to filter.
Not through any means I know about. But you can put a quantity in when you order and Fidelity will fill in the best price for that quantity. If you don't like the price you don't have to enter the order.
Right. Schwab has this capability in their bond search screen, but Fidelity and Vanguard do not as far as I know.

I like looking at depth of book anyway, since I want to see how much more I'm paying than the big guys.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
MisterMister
Posts: 526
Joined: Thu Nov 01, 2018 9:50 pm

Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Wed Aug 10, 2022 4:32 pm The yield for the shorter-term TIPS bought last week are higher this week, so there is even more incentive to hold TIPS bought at lower yields--at least that's the way I see it.
I must confess I can't wrap my head around this part of your response. I bought some of the 1/15/23 TIPs at yields as low as -2% a few weeks back. At that moment, my purchase said in effect that I would have to be satisfied with a -2% real yield, no matter what the future holds for the CPI over the next 3 months. Because that's all I will ever see in the end, regardless of where yields move for the same security before January 15.

I understand why you might want to add to the position at a lower price point. Just trying to understand what bearing current higher yields have on the perceived value of an earlier trade and whether or not it should be held to maturity.
Last edited by MisterMister on Wed Aug 10, 2022 4:53 pm, edited 2 times in total.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

bpg1234 wrote: Wed Aug 10, 2022 3:33 pm I have some existing 2024-2026 rungs purchased on the secondary market that I planned to buy some more. Their yield actually increased a wee bit today. The secondary market purchases in general still concern me some since my purchase prices included prior inflation adjustments so interested in thoughts on continuing as planned.
All TIPS have some prior inflation adjustments included, since all index ratios are > 1. The lowest is 1.01047 for the 7/15/2032 TIPS, and the next lowest is 1.03983 for the 4/15/2027 TIPS (these are for 8/11 settlement). So you could lose about 4% in nominal terms if there was net deflation of 4% between now and 4/15/2027.

Since you can't avoid the risk of deflation's impact on the index ratios, I would first consider other factors, like the maturity and the yield, before worrying about net deflation over the term to maturity. If I want to hold the shortest term TIPS, my only choice is 1/15/2023. I am not going to buy the 7/15/2032 just because it has the lowest index ratio if I don't want to own a 10-year TIPS at the current YTM.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
Kevin M
Posts: 15750
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Wed Aug 10, 2022 4:46 pm
Kevin M wrote: Wed Aug 10, 2022 4:32 pm The yield for the shorter-term TIPS bought last week are higher this week, so there is even more incentive to hold TIPS bought at lower yields--at least that's the way I see it.
I must confess I can't wrap my head around this part of your response. I bought some of the 1/15/23 TIPs at yields as low as -2% a few weeks back. At that moment, my purchase said in effect that I would have to be satisfied with a -2% real yield, no matter what the future holds for the CPI over the next 3 months. Because that's all I will ever see in the end, regardless of where yields move for the same security before January 15.

I understand why you might want to add to the position at a lower price point. Just trying to undestand what bearing current higher yields have on the perceived value of an earlier trade and whether or not it should be held to maturity.
I make investment decisions on forward-looking expected return. The expected return for the TIPS I bought at lower yields is higher now than when I bought them. So if I found them attractive at lower yields, they are even more attractive now, whether I'm holding or buying more.

The lowest yield I got was -3.36% (SA -3.81%) for 07/01/2022 settlement. So yeah, I will earn -3.36% real from the purchase date to maturity, but I will earn 0.08% real on them from now to maturity. And if I sold them now, my return would be -0.51% nominal and -2.03% real. So basically I've already taken the hit for the negative real yield at purchase, and I might as well hold to maturity to get the remaining positive real yield from now until maturity.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
Post Reply