exodusing wrote: ↑Sun Jun 04, 2023 2:59 pm
Kevin M wrote: ↑Sun Jun 04, 2023 2:41 pm
Mezzinmi wrote: ↑Fri Jun 02, 2023 3:43 pm
Next month the first TIPS bond I purchased will mature (CUSIP 912828VM9). Does the current value, as provided in my brok acct, of this bond purchased in the second. mrkt account for the inflation factor to date? Is there a formula for calculating the expected end value of a maturing TIPS?
Thx!
#Cruncher provided a detailed answer.
To put it simply, we
cannot yet calculate the value of the July 2023 TIPS because we don't yet know the inflation adjustments for 7/2 through 7/15. However, institutional traders can estimate it based on inflation-related numbers that are already known, and as #Cruncher says, are pricing the 7/15/2023 TIPS to be competitive with the 7/15/2023 nominal. When I pulled quotes from Fido on Friday at 2:25 PM ET the ask yield for the 7/15/2023 Treasury note was 4.964%.
The WSJ is quoting the 7/15/2023 note ask yield at 5.369% and bills at 5.314% for 7/13/2023 and 5.276% for the 7/18/2023. Odd that there would be such a large gap between Friday's WSJ and Fido (or change from 2:25 to close).
Presumably the market is pricing all TIPS to be competitive with similar maturity nominals (nominal minus expected inflation approximately equals TIPS).
There are money markets that are competitive with that. FZDXX, where I keep my spare cash, has a 7 day yield of 4.91%. 0.4% more than that would put about $3.33 in your pocket in a month for every $10K invested, or $33 per $100K. Yes, if in taxable, you could avoid state tax on that, and kick the federal tax ball down the road a month or so, but I'm not sure that would be worth my time and effort (and tying up funds).
As Kevin aptly pointed out in another post, as you go further into the future inflation becomes less and less predictable (and that can happen rather rapidly as we saw in 2021-2022). For that reason I have shifted my focus to buying longer term TIPS recently, to lock in positive real yields .I am extending my TIPS ladder from 2027 to 2033 (and focusing first on 2031-2033)....I just hope enough of my CDs mature while yields are still favorable. I am not going into the 2040s because of my age ,trying to balance uncertainty of yield with uncertainty of lifespan. My guess, which is just a guess, is that TIPS yields will decline with time, assuming inflation gets more under control and Fed. rate hikes continue tp slow or cease, so the sooner one buys the better .
It may seem overly conservative to some, but I would rather lock more money in a 1.5% real yield for 10 years than a 3%+ real yield for a bit over a month, not knowing what the future may bring. If I thought I might need the cash sometime soon I would just leave it in FZDXX.
By the way, if anybody has a CD maturing soon with Appalachian FCU, their rep. told me that they mail checks out in a manner that usually arrives within two or three days (I assume first class mail), and a bank wire or overnight delivery is a paid option. I am mentioning this because they offered a hot promotional rate at a time that would have their CDs maturing around now, so maybe others could avert what Kevin and I are going through with long transfer wait periods with Achieva.