Trading Treasuries (nominal and TIPS)

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AndyAndTheTuna
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Re: Trading Treasuries (nominal and TIPS)

Post by AndyAndTheTuna »

I see a 7/15 TIPS with a real yield of 2.4%. A comparable nominal has a yield of 4.6%. Is my understanding right that the TIPS will be a better bet if we see annualized inflation of greater than 2.2%? Or is it the case that TIPS is better if we see inflation in the time period up to maturity of 2.2%?
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Kevin M
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

AndyAndTheTuna wrote: Tue Dec 27, 2022 10:06 am I see a 7/15 TIPS with a real yield of 2.4%. A comparable nominal has a yield of 4.6%. Is my understanding right that the TIPS will be a better bet if we see annualized inflation of greater than 2.2%? Or is it the case that TIPS is better if we see inflation in the time period up to maturity of 2.2%?
The TIPS yield minus the nominal yield is the breakeven inflation rate (BEI). Yields are annualized values. If average annualized inflation is greater than the BEI, the TIPS will earn a higher nominal return, and vice versa.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by Horton »

On long TIPS (2045+), I’m seeing bid/ask spreads of about 20 bp’s today with minimum quantity of 50. This is at both Vanguard and Fidelity. Is this typical or higher than usual due to a lack of volume related to the holiday week?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Horton wrote: Tue Dec 27, 2022 2:23 pm On long TIPS (2045+), I’m seeing bid/ask spreads of about 20 bp’s today with minimum quantity of 50. This is at both Vanguard and Fidelity. Is this typical or higher than usual due to a lack of volume related to the holiday week?
Image

Note that a price bid/ask (as a percentage) of 0.45% for the 2045 equates to a yield bid minus ask of only 2 basis points.

As I recall, this looks pretty typical for TIPS.

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Re: Trading Treasuries (nominal and TIPS)

Post by Horton »

Thank you, Kevin!
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Auto roll at Fidelity

Post by Kevin M »

I just saw something in one of my Fidelity accounts that confused me at first, and thought I would share my observations.
  • On Nov 3 I bought 30 4-week and 30 8-week bills at auction, and set them to auto roll.
  • On Dec 1, the 4-week rolled into what was the 8-week on Nov 3, so I owned 60 of that one at that point.
  • On Dec 29, the the 4-week rolled into a new 4-week, and the 8-week rolled into a new 8-week.
  • I now see 30 bills maturing 1/31/2023 (4-week), 30 maturing 2/28/2023 (8-week), and 60 maturing 1/3/2023.
  • So it appears that I have twice as many bills as I actually have.
  • The reason is that the bills that are rolling mature on 1/3/2023, which is the same date the bills rolled into settle.
  • The account shows pending activity of -$59,712.30, which I had not noticed at first, and this ties it all together.
ETA: Kind of a bummer that the 1-month yield jumped more than 30 basis points from yesterday to today!

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Doc
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T-Bills 24 wk vs 52 wk

Post by Doc »

What are the pros and cons of buying a new 24 wk bill at auction vs a "used" 52 wk bill with the same maturity on the open market.
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AndyAndTheTuna
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Re: T-Bills 24 wk vs 52 wk

Post by AndyAndTheTuna »

Doc wrote: Mon Jan 02, 2023 11:09 am What are the pros and cons of buying a new 24 wk bill at auction vs a "used" 52 wk bill with the same maturity on the open market.
The bid-ask spreads for older treasuries can be wide, like 10-15bps. If you want to reduce the spread but want to guarantee your yield you could wait for the auction and buy it a few hours later on the secondary market, since liquidity for the most recent treasuries are higher.
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Re: T-Bills 24 wk vs 52 wk

Post by Kevin M »

AndyAndTheTuna wrote: Mon Jan 02, 2023 11:49 am
Doc wrote: Mon Jan 02, 2023 11:09 am What are the pros and cons of buying a new 24 wk bill at auction vs a "used" 52 wk bill with the same maturity on the open market.
The bid-ask spreads for older treasuries can be wide, like 10-15bps. If you want to reduce the spread but want to guarantee your yield you could wait for the auction and buy it a few hours later on the secondary market, since liquidity for the most recent treasuries are higher.
Let's take a look.

The 26-week bill to be auctioned on 1/3 matures on 7/6. The closest maturity for a 52-week bill (originally) is 7/13, which is CUSIP 912796XQ7. On Friday when I pulled quotes, the best prices were 97.634 bid and 97.683 ask, which is a spread of 0.05%. Assuming the fair price is the midpoint, you are paying a premium of about 0.025%.

The best yields were 4.63% bid and 4.53% ask, so a yield spread of 10 basis points, but I think looking at the price bid ask (as a percentage) is more relevant.

The most recently auctioned 26-week is CUSIP 912796ZR3, auctioned on 12/27. The best price bid/ask was 0.01% and the yield bid/ask spread was 3 basis points on Friday.

The other thing to consider is the large/small-quantity spread, unless you are buying a large enough quantity to meet the minimum for the best price.

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Re: Trading Treasuries (nominal and TIPS)

Post by HM 7 »

Kevin M wrote: Wed Jun 08, 2022 4:09 pm Today I bought 20 of the TIPS maturing 4/15/2026, CUSIP 91282CCA7, in my Vanguard IRA.

Numbers
-----------

Settlement: 6/9/2022
Maturity: 4/15/2026
Cpn : 0.125%
Price: 101.445312
Yield: -0.248%
Yield, seasonally adjusted (SA): -0.291%
Ref CPI dated date: 262.25027
Ref CPI settlement: 287.93200
Index ratio (IR, aka Inflation factor): 1.09793 (= 287.93200 / 262.25027)
Adjusted price: 111.379851 (= price * IR = 101.445312 * 1.09793)
Accrued interest: $4.12
Amount: 22,280.09 (= adjusted price * face value / 100 + acc int = 111.379851 * 20,000 / 100 + 4.12)
Nominal yield used for BEI calc: 3.037% (Treasury maturing 4/30/2026)
BEI: 3.29% (= 3.037% - (-0.248%))
SA BEI: 3.33% (= 3.037% - (-0.291%))

Notes
-------
  • This is the longest maturity TIPS I've bought so far, with a term of 3.85 years.
  • I bought it at Vanguard. All previous TIPS purchases were at Fidelity. Yield at Vanguard was 0.001% less than at Fidelity.
  • I did not have the money in my settlement fund to cover the purchase (this is the same IRA that I'm buying the bills at auction). I sold $30K of Treasury Money Market today to cover the purchase when it settles tomorrow.
  • I got about 42 basis points for extending maturity by one year (compared to 4/15/2025). For comparison, you get about 78 bps for extending from 4/15/2024 to 4/15/2025.
  • I first looked at the 7/15/2026. It's quoted yield was -0.310% for same quantity, so this appears to be a lower yield than the -0.248% yield of the 4/15/2026. However, the SA yield of the 7/15/2026 is -0.264%, which is higher than the SA yield for the 4/15/2026 of -0.291%, as expected. I did not think is was worth extending three months for about 3 basis points of extra yield.
Kevin

Thank you for the excellent details Kevin. I don't think I can go through the 2200 posts, but had a question.

I want to know what would happen when this TIPS matures on 4/15/2026.
For simplicity's sake, let's say inflation is 0% in the interim.

Would your redeem 20 bonds at 111.379851, the adjusted price. That's what you paid to buy it, 20*111.379851= 22,280 (ignoring the acc int for simplicity).

What confuses me is the the price is listed as 101.445, but you're paying the 111.379...price. I understand how the whole adjustment factor works, but I"m not understanding why the price isn't what you actually paid for it.
Also in the yield function, you would have to plug in 101.445 for price and 100 for redemption to get the correct yield, correct?
You're not getting 20 TIPS back at 100, are you?

Also, the 0.125% coupon you are getting, is it based on the 111.3795 value or the 101.445 value?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

HM 7 wrote: Fri Jan 06, 2023 12:16 am
Kevin M wrote: Wed Jun 08, 2022 4:09 pm Today I bought 20 of the TIPS maturing 4/15/2026, CUSIP 91282CCA7, in my Vanguard IRA.

Numbers
-----------

Settlement: 6/9/2022
Maturity: 4/15/2026
Cpn : 0.125%
Price: 101.445312
Yield: -0.248%
Yield, seasonally adjusted (SA): -0.291%
Ref CPI dated date: 262.25027
Ref CPI settlement: 287.93200
Index ratio (IR, aka Inflation factor): 1.09793 (= 287.93200 / 262.25027)
Adjusted price: 111.379851 (= price * IR = 101.445312 * 1.09793)
Accrued interest: $4.12
Amount: 22,280.09 (= adjusted price * face value / 100 + acc int = 111.379851 * 20,000 / 100 + 4.12)
Nominal yield used for BEI calc: 3.037% (Treasury maturing 4/30/2026)
BEI: 3.29% (= 3.037% - (-0.248%))
SA BEI: 3.33% (= 3.037% - (-0.291%))

Notes
-------
  • This is the longest maturity TIPS I've bought so far, with a term of 3.85 years.
  • I bought it at Vanguard. All previous TIPS purchases were at Fidelity. Yield at Vanguard was 0.001% less than at Fidelity.
  • I did not have the money in my settlement fund to cover the purchase (this is the same IRA that I'm buying the bills at auction). I sold $30K of Treasury Money Market today to cover the purchase when it settles tomorrow.
  • I got about 42 basis points for extending maturity by one year (compared to 4/15/2025). For comparison, you get about 78 bps for extending from 4/15/2024 to 4/15/2025.
  • I first looked at the 7/15/2026. It's quoted yield was -0.310% for same quantity, so this appears to be a lower yield than the -0.248% yield of the 4/15/2026. However, the SA yield of the 7/15/2026 is -0.264%, which is higher than the SA yield for the 4/15/2026 of -0.291%, as expected. I did not think is was worth extending three months for about 3 basis points of extra yield.
Kevin

Thank you for the excellent details Kevin. I don't think I can go through the 2200 posts, but had a question.

I want to know what would happen when this TIPS matures on 4/15/2026.
For simplicity's sake, let's say inflation is 0% in the interim.

Would your redeem 20 bonds at 111.379851, the adjusted price. That's what you paid to buy it, 20*111.379851= 22,280 (ignoring the acc int for simplicity).

What confuses me is the the price is listed as 101.445, but you're paying the 111.379...price. I understand how the whole adjustment factor works, but I"m not understanding why the price isn't what you actually paid for it.
Also in the yield function, you would have to plug in 101.445 for price and 100 for redemption to get the correct yield, correct?
You're not getting 20 TIPS back at 100, are you?

Also, the 0.125% coupon you are getting, is it based on the 111.3795 value or the 101.445 value?
The unadjusted price at maturity will be 100. So the inflation-adjusted price will be the index ratio (IR) on maturity date times 100. If there is 0% inflation between settlement and maturity, the IR would be the same as at settlement.

The decrease in price from 101.445312 to 100 is why the yield is negative. Yes, you use the unadjusted price in the YIELD function; this gives you the real yield, which is what you earn on top of inflation.

The coupon payment is based on face value (100) and the index ratio on the coupon payment date.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by N.Y.Cab »

Can effective yield be used to compare TIPS vs norminal Treasury of same maturity? I'm seeing these quotes at Fidelity when trying to buy 1 ($1k) of each.

07/15/2023 TIPS 912828VM9 effective yield at 2.863%
07/15/2023 Treas 912828ZY9 effective yield at 4.617%
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

N.Y.Cab wrote: Fri Jan 06, 2023 2:10 pm Can effective yield be used to compare TIPS vs norminal Treasury of same maturity? I'm seeing these quotes at Fidelity when trying to buy 1 ($1k) of each.

07/15/2023 TIPS 912828VM9 effective yield at 2.863%
07/15/2023 Treas 912828ZY9 effective yield at 4.617%
It depends what you mean by compare.

The TIPS yield is a real yield, so you will earn that amount above the average inflation rate.

The nominal Treasury yield is a nominal yield, so you will earn that amount before considering inflation.

The nominal yield minus the TIPS yield is the breakeven inflation rate (BEI). If inflation is higher than the BEI, the TIPS will have a higher nominal return, and vice versa.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by N.Y.Cab »

Kevin M wrote: Fri Jan 06, 2023 2:23 pm
N.Y.Cab wrote: Fri Jan 06, 2023 2:10 pm Can effective yield be used to compare TIPS vs norminal Treasury of same maturity? I'm seeing these quotes at Fidelity when trying to buy 1 ($1k) of each.

07/15/2023 TIPS 912828VM9 effective yield at 2.863%
07/15/2023 Treas 912828ZY9 effective yield at 4.617%
It depends what you mean by compare.

The TIPS yield is a real yield, so you will earn that amount above the average inflation rate.

The nominal Treasury yield is a nominal yield, so you will earn that amount before considering inflation.

The nominal yield minus the TIPS yield is the breakeven inflation rate (BEI). If inflation is higher than the BEI, the TIPS will have a higher nominal return, and vice versa.
Thanks, so I need to subtract expected inflation from norminal Treasury for a fair comparison.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

N.Y.Cab wrote: Fri Jan 06, 2023 2:30 pm
Kevin M wrote: Fri Jan 06, 2023 2:23 pm
N.Y.Cab wrote: Fri Jan 06, 2023 2:10 pm Can effective yield be used to compare TIPS vs norminal Treasury of same maturity? I'm seeing these quotes at Fidelity when trying to buy 1 ($1k) of each.

07/15/2023 TIPS 912828VM9 effective yield at 2.863%
07/15/2023 Treas 912828ZY9 effective yield at 4.617%
It depends what you mean by compare.

The TIPS yield is a real yield, so you will earn that amount above the average inflation rate.

The nominal Treasury yield is a nominal yield, so you will earn that amount before considering inflation.

The nominal yield minus the TIPS yield is the breakeven inflation rate (BEI). If inflation is higher than the BEI, the TIPS will have a higher nominal return, and vice versa.
Thanks, so I need to subtract expected inflation from norminal Treasury for a fair comparison.
Sure, but where do you get expected inflation? From the yields on the nominal Treasury and the TIPS. If you want to compare, just stick with the BEI concept.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

The last couple of weeks I've been buying the Apr 2024 and Jul 2024 TIPS. Here are my current TIPS holdings:

Image

What I've decided to do is put about 10% of my TIPS holdings in each of the shortest 10 maturities, starting with the shortest maturity that is not yet at 10%. So, I bought the Apr 2024 TIPS until I hit this limit, then started buying more of the Jul 2024, which now is at about 7% of holdings. I have a little more cash, and it will go into the Jul 2024 soon.

The big upcoming event is the Jan 2023 maturing in 4 days, but 1/15 is a Sunday, and Monday is a holiday, so the proceeds can be reinvested on Tuesday 1/17. I guess orders could be placed on Friday 1/13, since those orders would settle Tuesday 1/17, but I'll probably wait until Tuesday.

The proceeds will go into the Jul 2024 up to 10%, with the rest going into the Oct 2024, which is only at about 1% now.

I'll probably leave the longer maturities alone, unless yields for those maturities increase.

Here is the TIPS yield curve for shorter maturities, based on quotes pulled from Fidelity today:

Image

Kevin
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protagonist
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Re: Trading Treasuries (nominal and TIPS)

Post by protagonist »

N.Y.Cab wrote: Fri Jan 06, 2023 2:30 pm
Kevin M wrote: Fri Jan 06, 2023 2:23 pm
N.Y.Cab wrote: Fri Jan 06, 2023 2:10 pm Can effective yield be used to compare TIPS vs norminal Treasury of same maturity? I'm seeing these quotes at Fidelity when trying to buy 1 ($1k) of each.

07/15/2023 TIPS 912828VM9 effective yield at 2.863%
07/15/2023 Treas 912828ZY9 effective yield at 4.617%
It depends what you mean by compare.

The TIPS yield is a real yield, so you will earn that amount above the average inflation rate.

The nominal Treasury yield is a nominal yield, so you will earn that amount before considering inflation.

The nominal yield minus the TIPS yield is the breakeven inflation rate (BEI). If inflation is higher than the BEI, the TIPS will have a higher nominal return, and vice versa.
Thanks, so I need to subtract expected inflation from norminal Treasury for a fair comparison.
For comparison (out of curiosity) I just checked the 7 day yield on FZDXX, Fidelity Money Market Premium Class: 4.27%. Not very far behind the yield of the 7/15/23 Treasury (though the Treasury is state tax exempt). Every $10K in the 7/15 treasury would yield about $231 by 7/15. Every $10K in FZDXX would yield about $214 by 7/15 (if the current rate remains steady). As tax time is looming over the horizon, I prefer to keep what cash I have liquid until after I pay.
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Re: Trading Treasuries (nominal and TIPS)

Post by Hector »

Why TIPS maturing on 04/15/2023 have a higher yield (around 3.2% real) compared to all other up to 5 years maturities (real yield of 2.8% or lower)?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Hector wrote: Fri Jan 13, 2023 11:31 am Why TIPS maturing on 04/15/2023 have a higher yield (around 3.2% real) compared to all other up to 5 years maturities (real yield of 2.8% or lower)?
Two reasons.

1.The yield curve is inverted, so shorter maturities have higher yields.

2. Seasonality.

The chart below shows quoted ask yields and seasonally-adjusted (SA) ask yields, using quotes pulled from Fidelity just now:

Image

(Note that Fidelity is not even including the Jan 2023 in today's TIPS offerings, since it matures in two days, and does not trade like a typical TIPS.)

Note that the 7/15/2023 TIPS has a higher SA yield. Since I believe SA has an actual economic significance, I would favor the 7/15/2023 over the 4/15/2023.

Why is the yield curve inverted? One reason is that institutional traders expect real yields to fall. So, if you buy the 4/15/2023 now, then reinvest in the 4/15/2024 at maturity, traders would expect buying the 4/15/2024 today at the lower yield to provide about the same return.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Hector »

Kevin M wrote: Fri Jan 13, 2023 11:45 am
Hector wrote: Fri Jan 13, 2023 11:31 am Why TIPS maturing on 04/15/2023 have a higher yield (around 3.2% real) compared to all other up to 5 years maturities (real yield of 2.8% or lower)?
Two reasons.

1.The yield curve is inverted, so shorter maturities have higher yields.

2. Seasonality.

The chart below shows quoted ask yields and seasonally-adjusted (SA) ask yields, using quotes pulled from Fidelity just now:

Image

(Note that Fidelity is not even including the Jan 2023 in today's TIPS offerings, since it matures in two days, and does not trade like a typical TIPS.)

Note that the 7/15/2023 TIPS has a higher SA yield. Since I believe SA has an actual economic significance, I would favor the 7/15/2023 over the 4/15/2023.

Why is the yield curve inverted? One reason is that institutional traders expect real yields to fall. So, if you buy the 4/15/2023 now, then reinvest in the 4/15/2024 at maturity, traders would expect buying the 4/15/2024 today at the lower yield to provide about the same return.

Kevin
Thanks
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

Yesterday I had 100 T bills mature in my taxable Fidelity account. I used the proceeds to buy 100 bills maturing 7/13/2023 at a yield of 4.71% (with the extra going into FZDXX for now); CUSIP is 912796XQ7. Today the yield is 4.77%. Would I have been better off waiting until today to buy? I don't think so. A bill bought today doesn't settle until Tuesday 1/17, while my purchase yesterday settled today 1/13. Let's look at prices.

I paid 97.701. Best ask price now is 97.738, and that's for min qty 1,000. Price for min qty 100 is 97.741 (yield 4.765%). So, I paid less; the yield is higher today because there are four less days from settlement to maturity.

Note that 4.71% is a taxable-equivalent yield (TEY) of 5.34% at my marginal tax rates of 22% fed and 9.3% state. Pretty sweet compared to what we could get a year ago.

Here is the T bill yield curve using quotes pulled from Fidelity today:

Image

The one I bought yesterday is at the peak of the yield curve.

Here is a chart of my holdings as face value percent of total for this account (I have other Treasuries in tax advantaged accounts that aren't included, since I won't use any of that for spending):

Image

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Tom_T »

Anyone looking at this upcoming auction?

https://tipswatch.com/2023/01/15/the-fi ... nterested/
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Re: Trading Treasuries (nominal and TIPS)

Post by HM 7 »

What is the deflation protection when you buy on the secondary market?
I'm not predicting a prolonged deflation, just wanted to know if it makes a difference compared to buying at auction.
I know it's an unlikely scenario.

Using a generic example:
Price: $95
Inflation facor (IR): 1.2
Quantity: 1
Principal: 1,1140. (950*1.2)

When the TIPS matures, what is the lowest principal payout if there is prolonged deflation ?
-1,1140
-950 (950 times 1.0 IR)
- 1000 (par at auction times 1.0 IR)
- or is it something else.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

HM 7 wrote: Sun Jan 15, 2023 10:00 am What is the deflation protection when you buy on the secondary market?
I'm not predicting a prolonged deflation, just wanted to know if it makes a difference compared to buying at auction.
I know it's an unlikely scenario.

Using a generic example:
Price: $95
Inflation facor (IR): 1.2
Quantity: 1
Principal: 1,1140. (950*1.2)

When the TIPS matures, what is the lowest principal payout if there is prolonged deflation ?
-1,1140
-950 (950 times 1.0 IR)
- 1000 (par at auction times 1.0 IR)
- or is it something else.
1,000. The principal payout never goes below par.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Interesting discrepancy at Fidelity.

I have $28,000 of 1/15/2023 TIPS.

In my Fidelity Activity, I see payouts scheduled for 1/17:

$36,134.00 in principal (28,000 x 1.2905 index ratio)
$17.50 in interest (28,000 x .125% /2)

But the interest payment should also get the inflation adjustment, i.e. the interest should be $17.50 x 1.2905 = $22.58

This is my first year buying TIPs; maybe this will sort out over the next few days but I thought this was odd.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

MisterMister wrote: Sun Jan 15, 2023 2:03 pm Interesting discrepancy at Fidelity.

I have $28,000 of 1/15/2023 TIPS.

In my Fidelity Activity, I see payouts scheduled for 1/17:

$36,134.00 in principal (28,000 x 1.2905 index ratio)
$17.50 in interest (28,000 x .125% /2)

But the interest payment should also get the inflation adjustment, i.e. the interest should be $17.50 x 1.2905 = $22.58

This is my first year buying TIPs; maybe this will sort out over the next few days but I thought this was odd.
Yeah, we've been discussing this in another thread. All coupon payments made for 1/15/2023 coupon date are showing only the unadjusted coupon amounts in my Fidelity account (haven't checked Vanguard yet). I think it's just a "feature" of the way the brokerage systems operate. There's no way this doesn't get straightened out on Tuesday, 1/17.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Sun Jan 15, 2023 4:14 pm
MisterMister wrote: Sun Jan 15, 2023 2:03 pm Interesting discrepancy at Fidelity.

I have $28,000 of 1/15/2023 TIPS.

In my Fidelity Activity, I see payouts scheduled for 1/17:

$36,134.00 in principal (28,000 x 1.2905 index ratio)
$17.50 in interest (28,000 x .125% /2)

But the interest payment should also get the inflation adjustment, i.e. the interest should be $17.50 x 1.2905 = $22.58

This is my first year buying TIPs; maybe this will sort out over the next few days but I thought this was odd.
Yeah, we've been discussing this in another thread. All coupon payments made for 1/15/2023 coupon date are showing only the unadjusted coupon amounts in my Fidelity account (haven't checked Vanguard yet). I think it's just a "feature" of the way the brokerage systems operate. There's no way this doesn't get straightened out on Tuesday, 1/17.
Wow, not lookin' good. The activity is there in history, no longer in processing status, and the final interest payment is still wrong.
EDIT: Now back in processing status as of 1/17/2023. 8:53EST. We'll see.

Also, the incorrect payout amount is now fully credited and sitting in the SPAXX money market account. I know it's early morning but it looks to me like the Fidelity system "thinks" the matured bonds are fully processed. Eventually an adjustment will have to come through, but when?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

^Problem has been fixed in my account and at least one other. Jan 2023 TIPS: we now know exactly what the value will be at maturity
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by MisterMister »

Kevin M wrote: Tue Jan 17, 2023 10:54 am ^Problem has been fixed in my account and at least one other. Jan 2023 TIPS: we now know exactly what the value will be at maturity
Yeah, finally mine too.
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Re: Trading Treasuries (nominal and TIPS)

Post by jeffyscott »

MisterMister wrote: Tue Jan 17, 2023 11:35 am
Kevin M wrote: Tue Jan 17, 2023 10:54 am ^Problem has been fixed in my account and at least one other. Jan 2023 TIPS: we now know exactly what the value will be at maturity
Yeah, finally mine too.
All that angst could be avoided with Schwab, where there's no advance notice of upcoming interest payments and you wouldn't even see it in your account yet :wink: :mrgreen:
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Re: Trading Treasuries (nominal and TIPS)

Post by silvergga »

There is a Jan 2033 TIPS in auction, and expected yield = 1.25%. Shouldn't it be close to secondary's YTM? Apr and July 2032 are showing 1.47 and 1.37, respectively.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

silvergga wrote: Tue Jan 17, 2023 6:15 pm There is a Jan 2033 TIPS in auction, and expected yield = 1.25%. Shouldn't it be close to secondary's YTM? Apr and July 2032 are showing 1.47 and 1.37, respectively.
Yeah, just ignore the expected yield--no one knows what the yield will be at auction on Wednesday. Keep in mind that this doesn't settle until 1/31/2023, so the YIELD would use that date as the settlement date, even though the price will be determined on Wednesday 1/19.
If I make a calculation error, #Cruncher probably will let me know.
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Do I have this right? TIPS

Post by hudson »

1. The TIPS inflation adjustment is not paid until maturity?

2. The inflation adjustment amount is reported monthly and taxed yearly?

3. If you sell a TIPS before maturity, you will receive the inflation adjustment as part of the deal?

4. Interest only is paid every six months?
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Re: Do I have this right? TIPS

Post by Kevin M »

hudson wrote: Wed Jan 18, 2023 9:54 am 1. The TIPS inflation adjustment is not paid until maturity?

2. The inflation adjustment amount is reported monthly and taxed yearly?

3. If you sell a TIPS before maturity, you will receive the inflation adjustment as part of the deal?

4. Interest only is paid every six months?
1. You should read the OP and the relevant links in it; e.g.:
Kevin M wrote: Tue May 24, 2022 7:50 pm <snip>
Web pages
Replies in this thread
<snip>
Summary: TIPS inflation adjustments are done daily.

2. Ditto. Summary: Inflation adjustments are done daily, but yes, taxed annually.

3. Yes.

4. Yes, and interest payments are adjusted for inflation.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Thanks Kevin!
I've read and re-read. I've been following the discussion since day one. I'm starting to make a little progress, but it's not sinking in.
I think the following is correct...???
TIPS adjustments are daily, but only paid at maturity.
Interest is also adjusted for inflation. I need to re-read to understand how.
If one sells a TIPS early, the inflation adjustments to date are included. (Edit: You already said yes.)
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

hudson wrote: Wed Jan 18, 2023 3:22 pm Thanks Kevin!
I've read and re-read. I've been following the discussion since day one. I'm starting to make a little progress, but it's not sinking in.
I think the following is correct...???
TIPS adjustments are daily, but only paid at maturity.
Interest is also adjusted for inflation. I need to re-read to understand how.
If one sells a TIPS early, the inflation adjustments to date are included. (Edit: You already said yes.)
Sorry you're having a hard time understanding.

Each TIPS has an index ratio that changes daily based on the reference CPI. The latter is derived from the CPI for previous months. The eyebonds.info TIPS help bar explains it in more detail.

All TIPS get the same daily inflation adjustments, but the index ratios will be different because the TIPS were issued on different dates.

The value of the TIPS is the price times the index ratio, so it changed daily based on changes in each. If you sold, this is what you'd get.

If you hold to maturity, then yes, you receive the inflation adjusted value at maturity; i.e., 1,000 times the index ratio on the maturity date for each TIPS. TIPS funds pay this out monthly, or whatever their payment schedule is.

Each semi-annual coupon payment is one half the state coupon times the index ratio on the coupon payment date.

Kevin
Last edited by Kevin M on Thu Jan 19, 2023 1:04 pm, edited 1 time in total.
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Thanks again Kevin!
I'll try to digest the above.

It seems like buying TIPS and nominals by auction is optimal by a few basis points?

Buying TIPS and nominals on the secondary market may cost a minimal amount of basis points, but a novice isn't going to get burned?

A novice buying TIPS, STRIPS, and nominals is still going to do better than the expenses on a fund or ETF?

I purchased ten $1000 TIPS and nominals including a couple of STRIPS over the last week. I've sold a few just to see how it works. So far it cost me $25 to get this education. I learn better by doing. Once I own something, I'm motivated figure out what I don't know.
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Kevin M wrote: Wed Jan 18, 2023 4:53 pm
If you hold to maturity, then yes, you receive the inflation adjusted value at maturity; i.e., 1,000 times the index ratio on the maturity date for each TIPS. TIPS funds pay this out monthly, or whatever their payment schedule is.

Kevin
Can funds get the inflation adjusted value before maturity without selling?
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Re: Trading Treasuries (nominal and TIPS)

Post by kalarama »

1/15/2033 10 year TIPS auction results just posted: high yield 1.22%

https://www.treasurydirect.gov/instit/a ... 0119_4.pdf
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Re: Trading Treasuries (nominal and TIPS)

Post by mfFrom35k »

kalarama wrote: Thu Jan 19, 2023 12:07 pm 1/15/2033 10 year TIPS auction results just posted: high yield 1.22%

https://www.treasurydirect.gov/instit/a ... 0119_4.pdf
FYI, the coupon is 1.125%
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Re: Trading Treasuries (nominal and TIPS)

Post by mfFrom35k »

kalarama wrote: Thu Jan 19, 2023 12:07 pm 1/15/2033 10 year TIPS auction results just posted: high yield 1.22%

https://www.treasurydirect.gov/instit/a ... 0119_4.pdf
FYI, the coupon is 1.125%

Edit: Sorry for the duplicate post. Not sure how I did that.
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Re: Trading Treasuries (nominal and TIPS)

Post by hoops777 »

I have been reading this thread for months and still I still have no idea which I should buy in my Roth.
We have a lot of IBonds, almost 300K.
I am looking strictly at the most likely best return and have paralisys by analysis between buying nominals and TIPS.
I was even considering buying the one year and 18 month nominals for the yield but am afraid what the new rates will be upon maturity.
Any thoughts would be appreciated and my ideal timeframe is 4 to 5 years.
I see a 3 year CD at 4.35 on Schwab which is not bad though not what this thread is about.
K.I.S.S........so easy to say so difficult to do.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

hudson wrote: Wed Jan 18, 2023 5:44 pm Thanks again Kevin!
I'll try to digest the above.

It seems like buying TIPS and nominals by auction is optimal by a few basis points?
Yes, since there is no bid/ask spread and small quantities get the same price/yield as the largest quantity. However, this advantage is ephemeral, since yields could go up or down shortly before or after the auction, and you could get a lower or higher yield in the secondary market just due to timing.
Buying TIPS and nominals on the secondary market may cost a minimal amount of basis points, but a novice isn't going to get burned?
I don't feel like I've gotten burned in putting almost all of my IRA into TIPS over the last year, almost all bought on secondary. I sometimes avoid a particular maturity if the large/small-qty spread is large, like 15 basis points, but sometimes I buy it anyway if I really want that maturity.
A novice buying TIPS, STRIPS, and nominals is still going to do better than the expenses on a fund or ETF?
Not sure about that. If I wanted a rolling ladder of bonds with the same duration as a fund, I probably would just buy the fund (assuming ER like Vanguard funds). I personally want shorter average duration than the VG funds, and I don't know that I'll want to roll every maturing issue into more at the long end of the ladder, so I go with individual Treasuries.

Kevin
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

hoops777 wrote: Thu Jan 19, 2023 12:59 pm I have been reading this thread for months and still I still have no idea which I should buy in my Roth.
We have a lot of IBonds, almost 300K.
I am looking strictly at the most likely best return and have paralisys by analysis between buying nominals and TIPS.
I was even considering buying the one year and 18 month nominals for the yield but am afraid what the new rates will be upon maturity.
Any thoughts would be appreciated and my ideal timeframe is 4 to 5 years.
I see a 3 year CD at 4.35 on Schwab which is not bad though not what this thread is about.
Why not just put half into nominals and half into TIPS? Or maybe somewhat less in TIPS because of your I bonds.

One way to overcome analysis paralysis is to just start buying smaller quantities daily or weekly.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Kevin M wrote: Thu Jan 19, 2023 1:16 pm
hudson wrote: Wed Jan 18, 2023 5:44 pm Thanks again Kevin!
I'll try to digest the above.

It seems like buying TIPS and nominals by auction is optimal by a few basis points?
Yes, since there is no bid/ask spread and small quantities get the same price/yield as the largest quantity. However, this advantage is ephemeral, since yields could go up or down shortly before or after the auction, and you could get a lower or higher yield in the secondary market just due to timing.
Buying TIPS and nominals on the secondary market may cost a minimal amount of basis points, but a novice isn't going to get burned?
I don't feel like I've gotten burned in putting almost all of my IRA into TIPS over the last year, almost all bought on secondary. I sometimes avoid a particular maturity if the large/small-qty spread is large, like 15 basis points, but sometimes I buy it anyway if I really want that maturity.
A novice buying TIPS, STRIPS, and nominals is still going to do better than the expenses on a fund or ETF?
Not sure about that. If I wanted a rolling ladder of bonds with the same duration as a fund, I probably would just buy the fund (assuming ER like Vanguard funds). I personally want shorter average duration than the VG funds, and I don't know that I'll want to roll every maturing issue into more at the long end of the ladder, so I go with individual Treasuries.

Kevin
Thanks again!
On the yields going up and down before or after the auction: I can't control that, so I'll try not to sweat it too much.

On watching for the spread: When I'm buying one $1000 treasury, I have to take my lumps. When I buy more, I'll watch for that. I think that choice is made on the secondary market page where you get 3 or 4 choices?

On the funds vs individual treasuries: The non-rolling ladder may be a better fit for me. For now, that's what I'm planning. I watch funds too much and agonize over dips. Treasuries dip just as much; for some reason, it doesn't bother me because my plan is to hold until maturity.
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Re: Trading Treasuries (nominal and TIPS)

Post by hoops777 »

Kevin M wrote: Thu Jan 19, 2023 1:34 pm
hoops777 wrote: Thu Jan 19, 2023 12:59 pm I have been reading this thread for months and still I still have no idea which I should buy in my Roth.
We have a lot of IBonds, almost 300K.
I am looking strictly at the most likely best return and have paralisys by analysis between buying nominals and TIPS.
I was even considering buying the one year and 18 month nominals for the yield but am afraid what the new rates will be upon maturity.
Any thoughts would be appreciated and my ideal timeframe is 4 to 5 years.
I see a 3 year CD at 4.35 on Schwab which is not bad though not what this thread is about.
Why not just put half into nominals and half into TIPS? Or maybe somewhat less in TIPS because of your I bonds.

One way to overcome analysis paralysis is to just start buying smaller quantities daily or weekly.
Thanks
K.I.S.S........so easy to say so difficult to do.
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

hudson wrote: Thu Jan 19, 2023 1:48 pm On watching for the spread: When I'm buying one $1000 treasury, I have to take my lumps. When I buy more, I'll watch for that. I think that
You see the quotes for different min quantities in depth of book. At Fidelity, click the depth of book icon on the right. At Vanguard, click "Show more" link in the CUSIP column.

Sometimes if the large/small-qty spread is larger than I like, I look at similar maturities to see if the yield is higher for the quantity I'm buying, even if the large-qty yield is lower.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Trading Treasuries (nominal and TIPS)

Post by hudson »

Kevin M wrote: Thu Jan 19, 2023 2:05 pm
hudson wrote: Thu Jan 19, 2023 1:48 pm On watching for the spread: When I'm buying one $1000 treasury, I have to take my lumps. When I buy more, I'll watch for that. I think that
You see the quotes for different min quantities in depth of book. At Fidelity, click the depth of book icon on the right. At Vanguard, click "Show more" link in the CUSIP column.

Sometimes if the large/small-qty spread is larger than I like, I look at similar maturities to see if the yield is higher for the quantity I'm buying, even if the large-qty yield is lower.
Useful info...thanks!
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Re: Trading Treasuries (nominal and TIPS)

Post by silvergga »

Some of my bonds matured so I replaced them with 7/20/23 maturing Treasuries at 4.804% maturity today.

Noticed 7/13/23 is only at 4.739. Seems like a big yield difference for an extra week?
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Re: Trading Treasuries (nominal and TIPS)

Post by Kevin M »

silvergga wrote: Fri Jan 20, 2023 11:12 am Some of my bonds matured so I replaced them with 7/20/23 maturing Treasuries at 4.804% maturity today.

Noticed 7/13/23 is only at 4.739. Seems like a big yield difference for an extra week?
Yesterday when I pulled quotes from Fidelity the yields were 4.76% and 4.83% respectively. Differences like this are not uncommon:

Image

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