Now that long TIPS yields are 60 bp off their highs I will…

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Makefile
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Makefile »

Escapevelocity wrote: Mon Sep 19, 2022 3:39 pm I wasn't referring to stocks. Let's say you wait a year from now to liquidate I-Bonds because they're still paying out a high rate. OK, you have a nice return for that year, but let's say at the end of that year that TIPS real return has dipped to zero or less never to revert to today's ask yield. Now, you''ve lost the opportunity to make ~1.5% real for the next 10-20 years potentially had you bought and held the TIPS that are available today. Now that decision to hold tight on the I Bonds ain't looking so spiffy.
Conversely, should the I Bond fixed rate go above zero, you have up to a six month lag period to buy them at that fixed rate in the event the next catastrophe causes yields to immediately drop to zero (see: COVID)
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

Northern Flicker wrote: Mon Sep 19, 2022 4:58 pm
Kevin M wrote: Mon Sep 19, 2022 4:45 pm
Northern Flicker wrote: Mon Sep 19, 2022 4:12 pm
jeffyscott wrote: Mon Sep 19, 2022 10:04 am
CletusCaddy wrote: Mon Sep 19, 2022 9:56 am <snip>
Not really, perhaps a few months of expected decline in the non-seasonally adjusted CPI to explain the high yields on very short term
TIPS like Jan and April 2023, but the 10 year BEI is 2.38%, at 5 years it's 3.62%.
5 year BEI is 2.44%.
<snip>
For CMT real rate, OK, but for actual Treasuries, closest to 5-year maturity is the 7/15/27, for which the standard BEI is 2.56% based on Fidelity quotes earlier today. Seasonally-adjusted (SA) it's 2.58%.

BEI for the 4/15/27 is 2.50%, and SA it's 2.62%. Seasonal adjustment has a larger impact on 4/15 maturity dates since it's further from settlement for purchase today.

I trust the SA numbers more.

Kevin
I don't think the seasonal adjustments are particularly meaningful when COVID and the war in Ukraine are the drivers of the current inflation spike.<snip>
If that were true, we wouldn't see the wild variations in ask yield quotes for adjacent maturities, and the seasonal adjustments wouldn't significantly smooth them out:

Image

Since the 7/15 maturities have the smallest adjustments, you draw a trend line through the 7/15 ask yields, and get a reasonable approximation of the SA curve.

Also, we can view the seasonal adjustment factors (NS/SA) over the last five years, and see that 2021 and 2022 YTD are similar to past cycles:

Image

Kevin
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Northern Flicker »

Kevin M wrote: Mon Sep 19, 2022 5:50 pm
Northern Flicker wrote: Mon Sep 19, 2022 4:58 pm
Kevin M wrote: Mon Sep 19, 2022 4:45 pm
Northern Flicker wrote: Mon Sep 19, 2022 4:12 pm
jeffyscott wrote: Mon Sep 19, 2022 10:04 am
Not really, perhaps a few months of expected decline in the non-seasonally adjusted CPI to explain the high yields on very short term
TIPS like Jan and April 2023, but the 10 year BEI is 2.38%, at 5 years it's 3.62%.
5 year BEI is 2.44%.
<snip>
For CMT real rate, OK, but for actual Treasuries, closest to 5-year maturity is the 7/15/27, for which the standard BEI is 2.56% based on Fidelity quotes earlier today. Seasonally-adjusted (SA) it's 2.58%.

BEI for the 4/15/27 is 2.50%, and SA it's 2.62%. Seasonal adjustment has a larger impact on 4/15 maturity dates since it's further from settlement for purchase today.

I trust the SA numbers more.

Kevin
I don't think the seasonal adjustments are particularly meaningful when COVID and the war in Ukraine are the drivers of the current inflation spike.<snip>
If that were true, we wouldn't see the wild variations in ask yield quotes for adjacent maturities, and the seasonal adjustments wouldn't significantly smooth them out:

Image

Since the 7/15 maturities have the smallest adjustments, you draw a trend line through the 7/15 ask yields, and get a reasonable approximation of the SA curve.

Also, we can view the seasonal adjustment factors (NS/SA) over the last five years, and see that 2021 and 2022 YTD are similar to past cycles:

Image

Kevin
Using historical data to validate seasonal adjustments is statistically invalid. Historical data was used to develop the seasonal adjustments so of course it matches well historically.

Also, you don't know what is happening in between data points. Given the variation at actual data points, drawing the trend line through data points may be responsible for a substantial part of the smoothing in between.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by squirrel1963 »

Stay the course and engage in no market timing. I bought TIPS in 2011-2022 to match future liabilities and have all I need according to my investment policy statement.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by squirrel1963 »

ScubaHogg wrote: Mon Sep 19, 2022 8:37 am
McQ wrote: Sun Sep 18, 2022 11:08 pm 4. Convert *all* my bond holdings to long TIPS, including those embedded in Wellesley, Wellington or other balanced funds.
Amen. I’ll say it till I’m blue in the face. I see no reason for retirees to hold long or intermediate nominal bonds unless they have nominal liabilities. It’s a ton of historical risk for an unclear payoff.
There was a long thread by willthrill181 recently, now locked, which argued that any bond other than TIPS/ibonds suffers from asymmetric inflation risk.
I was 100% onboard with Willthrill81. It’s a shame the thread was locked as a lot of folks still didn’t grasp that just mathematically there is an asymmetric risk between nominal and inflation indexed bonds. I think 40 years of declining inflation in the US has mislead many people.
Completely agree :beer
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Kevin M
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

Northern Flicker wrote: Mon Sep 19, 2022 6:34 pm
Kevin M wrote: Mon Sep 19, 2022 5:50 pm
Northern Flicker wrote: Mon Sep 19, 2022 4:58 pm
Kevin M wrote: Mon Sep 19, 2022 4:45 pm
Northern Flicker wrote: Mon Sep 19, 2022 4:12 pm
5 year BEI is 2.44%.
<snip>
For CMT real rate, OK, but for actual Treasuries, closest to 5-year maturity is the 7/15/27, for which the standard BEI is 2.56% based on Fidelity quotes earlier today. Seasonally-adjusted (SA) it's 2.58%.

BEI for the 4/15/27 is 2.50%, and SA it's 2.62%. Seasonal adjustment has a larger impact on 4/15 maturity dates since it's further from settlement for purchase today.

I trust the SA numbers more.

Kevin
I don't think the seasonal adjustments are particularly meaningful when COVID and the war in Ukraine are the drivers of the current inflation spike.<snip>
If that were true, we wouldn't see the wild variations in ask yield quotes for adjacent maturities, and the seasonal adjustments wouldn't significantly smooth them out:

Image

Since the 7/15 maturities have the smallest adjustments, you draw a trend line through the 7/15 ask yields, and get a reasonable approximation of the SA curve.

Also, we can view the seasonal adjustment factors (NS/SA) over the last five years, and see that 2021 and 2022 YTD are similar to past cycles:

Image

Kevin
Using historical data to validate seasonal adjustments is statistically invalid. Historical data was used to develop the seasonal adjustments so of course it matches well historically.
First, the seasonal adjustment factors were released in early Feb 2022, yet they continue to work as expected for CPI releases since the Jan 2022 release. Isn't that convenient?

Second, we have no choice but to use historical SA factors earlier in the year, since we didn't have them for later months yet, and must use the factors for 2021, for example, in earlier months in 2022. Currently we have ref CPI through 11/1/22, so we can use 2022 SA factors for the rest of the year, since the latest mm/dd for TIPS is 10/15. The difference between using 2021 and 2022 SA factors is pretty small, which is as it should be.

Third, you aren't acknowledging how well the SA factors do at smoothing the yield curve by minimizing the cyclical seasonal variations. Of course you are welcome go ignore the seasonal adjustments if you wish, but I personally pay attention to them in making TIPS purchase decisions.

Finally, BLS did some special interventions to mitigate the effects of COVID on the seasonal adjustments:
PPI and CPI seasonal adjustment during the COVID-19 pandemic

In 2020, multiple PPI and CPI series measured extreme price movements as a result of the COVID-19 pandemic. For example, the unadjusted PPI and CPI for gasoline decreased 54.7 and 16.5 percent respectively in April 2020. Because the PPI and CPI use historical data to estimate seasonal patterns, extreme price movements in 2020 could have adversely affected seasonal adjustment. The PPI and CPI seasonal adjustment during the COVID-19 pandemic article explains the steps the BLS took to mitigate the effects of the COVID-19 pandemic on seasonally adjusted price indexes. In particular, it outlines how BLS greatly increased the scope of intervention modeling for both the PPI and CPI in 2021 and how this strategy was effective in mitigating the effects of the COVID-19 pandemic on seasonal adjustment. As a result of this increase in intervention work, revisions to the all items CPI and the PPI for final demand during the 2021 seasonal revision were similar in magnitude to pervious revisions.
Source: https://www.bls.gov/cpi/seasonal-adjustment/home.htm

I don't want to derail this thread further with the SA stuff, especially since it is not very significant for longer-term TIPS (the subject of this thread). If interested, you can post your thoughts in the most recent thread dedicated to the topic, and we can discuss further there: TIPS yield curve and seasonal adjustment update.

Thanks,

Kevin
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Northern Flicker
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Northern Flicker »

I'll accept that COVID factors were modeled or incorporated in some way. This still does not account for the war in Ukraine. For instance, wheat prices spiked considerably due to naval blockades of Black Sea ports in Ukraine, then fell significantly when a deal was cut to allow Ukrainian grain exports pass the blockade. I think it is reasonable to prefer to base a nominal vs TIPS decision on seasonally adjusted BEI, but I think the margin of error in seasonal adjustments is higher at present than in recent years.
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McQ
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by McQ »

midnightrun wrote: Mon Sep 19, 2022 4:56 pm I've never purchased individual treasuries and have a few questions about how to practically implement a LMP using individual TIPS. Both my spouse and myself are age 42 with plans to retire at age 55. We hold a fixed rate 30 year mortgage well below the EE bond doubling rate-we've covered that nominal liability with our yearly EE purchase. We also max I bonds yearly ($25k). Our projected fixed essential expenses (healthcare premiums, utilities, groceries, transportation, etc) are approximately equal to anticipated combined social security at age 70 of roughly $55k. Additional expenses (travel/restaurants/leisure) will be funded by equity heavy risk portfolio. If we want to set up a LMP for essential expenses to fund the gap between early retirement and taking social security (2035-2050), what's the best way to practically implement this?

1. Purchase 30 year TIPS at issue and sell before maturity to fund each year's expenses
2. Purchase a mix of 10&20 year TIPS with plan to hold until maturity. For years that mature before expenses are due, hold in TBills/short term TIPS until needed.
3. another option? We will have a sizable chunk of I Bonds that can be redeemed at any time to fill in holes.

In addition, is it better to hold individual TIPS at Treasury Direct, a standard taxable brokerage, or a tax-deferred account with a brokerage window?
Please keep in mind that I have no qualification to give individual advice (the only letters that follow my name are Ph.D.). But since you took the trouble to post in this thread, here goes.

1. Your personal situation is complicated by the gap in TIPS maturities between 2032 and 2040 (vagaries of Treasury issuance).
2. I might double up on the 2032 to cover 2035, and quintuple on the 2040 to cover 2036-2039. Or you could use your ibonds; sounds like some of those will mature in the 2040s anyway.
3. After 2040 you can ladder out to 2050 with individual TIPS year by year. Most precise, lowest risk solution.

If you don't recognize 'OID" at a glance, or can't calculate the effect of OID on realized TIPS yield, after looking up the acronym, you will want to use a tax deferred account with a brokerage window, where you can easily buy individual TIPS.

Best wishes, and don't forget to celebrate your good fortune :sharebeer

PS: your joint social security estimate seems low, unless you are expressing it in real terms? Are you consistently expressing all other liabilities and assets in real terms? Lots of mischief potential (underestimating SS) if not.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by McQ »

vineviz wrote: Mon Sep 19, 2022 1:50 pm
McQ wrote: Mon Sep 19, 2022 1:40 pm 2. I was shocked by the volatility in long TIPS prices early this year: 6 points down (180 32nds) in a day, then 6 points up, then in a week or two, six points down again. Were you surprised? Had you seen it before in TIPS? Chastening to see that level of volatility on what I consider the ultimate in a risk-free security.
It's a good reminder that when it comes to fixed income assets, "risk-free" and "low price volatility" are often antithetical concepts.
Point well made. Would you go so far as rejecting the Sharpe ratio, and other volatility-based metrics, when evaluating fixed income alternatives?
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by vineviz »

McQ wrote: Mon Sep 19, 2022 10:33 pm
vineviz wrote: Mon Sep 19, 2022 1:50 pm
McQ wrote: Mon Sep 19, 2022 1:40 pm 2. I was shocked by the volatility in long TIPS prices early this year: 6 points down (180 32nds) in a day, then 6 points up, then in a week or two, six points down again. Were you surprised? Had you seen it before in TIPS? Chastening to see that level of volatility on what I consider the ultimate in a risk-free security.
It's a good reminder that when it comes to fixed income assets, "risk-free" and "low price volatility" are often antithetical concepts.
Point well made. Would you go so far as rejecting the Sharpe ratio, and other volatility-based metrics, when evaluating fixed income alternatives?
Yes.

Of course I dislike the Sharpe ratio pretty much universally.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by ikowik »

McQ above referred to a gap in TIPS bond maturity years.

I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Robot Monster »

ikowik wrote: Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.

I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
I use the Wall Street Journal page,
https://www.wsj.com/market-data/bonds/tips
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by ikowik »

Robot Monster wrote: Tue Sep 20, 2022 8:16 am
ikowik wrote: Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.

I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
I use the Wall Street Journal page,
https://www.wsj.com/market-data/bonds/tips
Thanks. Would those years not fill out as new TIPS bonds are issued by the Treasury? For example, the 10-year TIPS to be released in 2023 will be maturing in 2033, filling out one of those rungs.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Robot Monster »

ikowik wrote: Tue Sep 20, 2022 8:34 am
Robot Monster wrote: Tue Sep 20, 2022 8:16 am
ikowik wrote: Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.

I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
I use the Wall Street Journal page,
https://www.wsj.com/market-data/bonds/tips
Thanks. Would those years not fill out as new TIPS bonds are issued by the Treasury? For example, the 10-year TIPS to be released in 2023 will be maturing in 2033, filling out one of those rungs.
That's correct, they will fill out over time as you describe. Who knows where rates will be then, though.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by JackoC »

Zosima wrote: Mon Sep 19, 2022 10:40 am Nominal yields on Treasuries have increased along with real yields on TIPS. As of 9/19, 10-year Zero Coupon Treasuries in the secondary market at Fidelity are yielding 3.61% while July 2032 TIPS are yielding 1.08%, a difference of 2.53%. The St. Louis FED's break-even inflation rate as of 9/16 was 2.38%.

https://fred.stlouisfed.org/series/T10YIE

Investors can determine whether the 15bp insurance cost (net of the liquidity premium for TIPS) is worth it.
The FRED data is simply the difference between constant maturity nominal 'par' yield and the TIPS yield, as you can see in the description. Same answer you get looking at the Daily Yield Curve. The difference between that and your answer is just an artifact of STRIP v 'par' yield on the nominal curve and interpolation method Fed uses, it's not showing the net of 'insurance' and 'liquidity' premium embedded in the TIPS yield.

To do that you need an estimate of inflation expectations that doesn't depend on the TIPS yield. The Cleveland Fed's model (see link) purports to do this. The key alternative input is over-the-counter inflation swap prices. The September output of the model is 2.35% in 10 yrs. The TIPS BE (by conventional method in FRED data or just looking at DYC) was 2.44% Sep 1 and 2.34% yesterday so implying as little as ~zero net 'insurance' and 'liquidity/other'. But, that model's output is noisy. For example in March it said the 10yr inflation expectation was only 1.92%. Not only was the TIPS BE 2.84% (3/15) but who then thought the 10yr inflation expectation was below 2%? And the Cleveland model does calculate the 'inflation risk premium' ('insurance premium') putting it at only 40bps in March (52 now), so that would have implied back in March you'd *lose* return on TIPS due to liquidity. The actual number for insurance-liquidity is hard to nail down in practice IMO, beyond the general intuition that the two largely offset (most of the time).
https://www.clevelandfed.org/our-resear ... tions.aspx

I view TIPS generally favorably. I don't believe long term nominal treasuries make sense for my investing to cover distant real (like living expenses) liabilities. I read the discussions about correlation with stocks, not very convincing IMO. I have sometimes preferred best medium term CD's to TIPS, when the spread is advantageous and/or attractive put feature (EWP of less than 1 yr in particular), also some fairly short term muni's balancing tax advantage with credit risk on stuff I want to be rock solid if things go south generally. If 'it'll probably be OK' is not good enough for 'safe', stocks will 'probably' be OK too. My 'safe' is for when things are very not OK. Anyway, I'll increase my TIPS allocation now as CD's mature (or I put them, recently did one and about to do another) because CD spread to treasuries now is terrible. But even as relative TIPS fan I'm not sure it's valid to view offsetting insurance and liquidity premia, assuming so, as 'free insurance'. Some investors really need liquidity on a substantial part of their FI allocation (though almost nobody needs it on all, a common bad implicit assumption IME) though I don't and if you were not harvesting liquidity premium in TIPS, you could be harvesting it on other govt/near govt risk with lower liquidity than nominals, like agencies (or CD's though truly good CD offers are just mispricings not return for risk, it's excess return for paying attention and jumping through some hoops to deal with some perhaps hole-in-the-wall CU somewhere).
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

ikowik wrote: Tue Sep 20, 2022 8:10 am McQ above referred to a gap in TIPS bond maturity years.

I have read a similar statement before on this forum, but cannot find more information after a Google search. Not on Treasury Direct site either. Would someone point to a site where I can get more information? Starting to fill out a TIPS ladder.
Do you have a brokerage account? If so, do a bond search on TIPS, and you will find 49 of them outstanding as of today. Here are the search results from Fidelity:

Image

If you click on the image, you can click on it again to zoom in to see the full screen.

Kevin
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by CloseEnough »

Northern Flicker wrote: Mon Sep 19, 2022 4:51 pm TIPS should be purchased instead of nominal bonds for one of these two reasons:

1. To match the asset to real liabilities.

2. To protect against inflation over the term of the bond turning out to be higher than what the market projects.
I see a third reason, which is diversification of the fixed income allocation in a portfolio. The decision to allocate a portion of FI to TIPS just becomes easier as real yield rises.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by patrick »

jeffyscott wrote: Mon Sep 19, 2022 2:49 pm
patrick wrote: Mon Sep 19, 2022 1:51 pm I bonds: They are inflation protected and also have a 0 nominal floor on semiannual rates. However, recently issued I bonds have much lower real yields (0% to 0.5% on mine) than the current rate on TIPS. The 9.62% semiannual rate seems to make them worth keeping for now, but once that has expired I will probably sell mine for TIPS unless TIPS rates have fallen significantly by then.
With one more monthly inflation report to go, it looks like the subsequent rate is likely to be 5%+ (we'd have to see more than 0.5% deflation for September for it to be below 5%). Won't you want to keep them for another 6 months at that interest rate?
It's an interesting question where the threshold should be. I have a bit more time to decide as I won't get the next rate on any of my bonds until January 2023. Most of them would still be subject to the 3-month penalty then which would mean those bonds should be held at least a bit longer either way.

There seems to be a bit of an asymmetric concern here if the strategy is to never sell when the rate is 5% or above. If inflation stays at 5% for many years, I'd lose 1.4% in real yield (for 0% savings bonds) every year which is a big cumulative disadvantage. On the other hand, if the inflation rate is 5% in the very next period but is 0.5% for every subsequent period, the loss is only 1.6% total (I'd lose 4.5% due to the lower inflation adjustment but gain 1.4% in real yield, and that is only for half a year).
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Logan Roy »

McQ wrote: Sun Sep 18, 2022 11:08 pm 6. Already converted all my bonds to the 20-year TIPS as soon as it yielded 1.0% real…just some weeks ago. Positive real returns, government guaranteed, are … positive real returns.
I completely sold out of non-index-linked and corporate bonds 8 years ago, and now barbell short and long duration TIPS (increasing duration now).

There was a paper published – I've tried to find since – that argued that because TIPS hedge inflation, and have this deflation Put, there's a bit of a free lunch that doesn't seem factored into pricing, relative to Treasuries.

Two arguments for switching all bond exposure to TIPS (on positive yields when available), for me, concern global debt:

a) The primary purpose of bonds is to hedge stock market exposure, and as Treasuries primarily hedge deflation, they're not really hedging much – because we know deflation would be so disastrous for the economy, we'll throw everything at it (re: Japan), and that means endless easing, and infinite duration assets will usually reap more of the benefits;

b) The only likely way we're going to be able to manage global debt is to inflate it away, which means there's an incentive to keep real yields negative. So TIPS on positive yields are probably pretty good value.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by jeffyscott »

patrick wrote: Fri Sep 23, 2022 9:36 am
jeffyscott wrote: Mon Sep 19, 2022 2:49 pm
patrick wrote: Mon Sep 19, 2022 1:51 pm I bonds: They are inflation protected and also have a 0 nominal floor on semiannual rates. However, recently issued I bonds have much lower real yields (0% to 0.5% on mine) than the current rate on TIPS. The 9.62% semiannual rate seems to make them worth keeping for now, but once that has expired I will probably sell mine for TIPS unless TIPS rates have fallen significantly by then.
With one more monthly inflation report to go, it looks like the subsequent rate is likely to be 5%+ (we'd have to see more than 0.5% deflation for September for it to be below 5%). Won't you want to keep them for another 6 months at that interest rate?
It's an interesting question where the threshold should be. I have a bit more time to decide as I won't get the next rate on any of my bonds until January 2023. Most of them would still be subject to the 3-month penalty then which would mean those bonds should be held at least a bit longer either way.

There seems to be a bit of an asymmetric concern here if the strategy is to never sell when the rate is 5% or above. If inflation stays at 5% for many years, I'd lose 1.4% in real yield (for 0% savings bonds) every year which is a big cumulative disadvantage. On the other hand, if the inflation rate is 5% in the very next period but is 0.5% for every subsequent period, the loss is only 1.6% total (I'd lose 4.5% due to the lower inflation adjustment but gain 1.4% in real yield, and that is only for half a year).
I was just assuming that 5% would be well above any alternative, it's getting a little closer than expected. But in few weeks we will know exactly what the subsequent nominal rate is going to be. My current strategy is to not sell until I can get at least close to the same yield from nominal treasuries or CDs. And, as you note, there would still be a need to wait until the new rate has been applied for 3 months, due to the penalty. So all of ours are voluntarily locked down until at least Feb 2023 to earn the 9%+, but I am expecting to extend that by 6 months.

We have very limited capacity in taxable and I really only bought I-bonds for their short-term, high nominal returns. After 1 year, these become like a savings account with a floating nominal rate that changes every 6 months.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by rockstar »

I bought at 40bps. I might buy more.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by gmaynardkrebs »

I'm all in @ 2% 15+ year. So will a lot of people, so act quickly.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Angst »

midnightrun wrote: Mon Sep 19, 2022 4:56 pm I've never purchased individual treasuries and have a few questions about how to practically implement a LMP using individual TIPS. Both my spouse and myself are age 42 with plans to retire at age 55. We hold a fixed rate 30 year mortgage well below the EE bond doubling rate-we've covered that nominal liability with our yearly EE purchase. We also max I bonds yearly ($25k). Our projected fixed essential expenses (healthcare premiums, utilities, groceries, transportation, etc) are approximately equal to anticipated combined social security at age 70 of roughly $55k. Additional expenses (travel/restaurants/leisure) will be funded by equity heavy risk portfolio. If we want to set up a LMP for essential expenses to fund the gap between early retirement and taking social security (2035-2050), what's the best way to practically implement this?

1. Purchase 30 year TIPS at issue and sell before maturity to fund each year's expenses
2. Purchase a mix of 10&20 year TIPS with plan to hold until maturity. For years that mature before expenses are due, hold in TBills/short term TIPS until needed.
3. another option? We will have a sizable chunk of I Bonds that can be redeemed at any time to fill in holes.

In addition, is it better to hold individual TIPS at Treasury Direct, a standard taxable brokerage, or a tax-deferred account with a brokerage window?
I'd say holding TIPS in tax-deferred brokerage account is ideal, and it's the only place I do it. I see no advantage to holding at Treasury Direct (TD) and only the disadvantage of not being able to sell directly out of TD into the secondary market.

In your situation, you could outright buy the ladder now in the secondary market (with a couple gaps here and there) or do a blend of buying 10 yrs at auction (beginning in 2025) and the secondary market, and of course you can choose to use other existing holdings (e.g. I Bonds) for some rungs. There is no absolute right or wrong in implementing this for yourself.

If you enjoy spreadsheets and perfection, there may be no better resource here for building TIPS ladders than #Cruncher's spreadsheet. Searching the website for "TIPS ladder" will bring up many threads, including the following, both of which reference #Cruncher's TIPS ladder building spreadsheet tool:

viewtopic.php?t=93849
viewtopic.php?p=1820346

Here's the spreadsheet download page, from #Cruncher's own website:
http://eyebonds.info/downloads/pages/TIPSLadder.html

A bit over 10 years ago I chose to start buying 30-yr TIPS at auction annually for a LMP and have filled in some ladder gaps with shorter TIPS, also bought at auction and some in the secondary market, as well as with I Bonds, especially when real rates went negative (I Bonds have their built-in 0% real floor).
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by McQ »

Last week the 2045 TIPS was yielding about 1.60% real. Yesterday it was 1.77%, and today 1.91% at WSJ.com. Close enough for my purposes.

I did not see a way to buy TIPS online in my TD Ameritrade account (brokerage option within a retirement plan structure). For those in the same boat, there is LTPZ, an ETF holding TIPS with maturity greater than 15 years; because of the gap in issuance, maturity is currently 18 years and up. Be mindful of the duration, long TIPS are for holding long term.

I'm not thrilled about the 20 bp expense ratio, but then again, the bid-ask spread on these bonds is 5/32nds, about .0020 of the price, so ... whatever.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by typical.investor »

whodidntante wrote: Sun Sep 18, 2022 11:11 pm You might get to make this decision. The STIP ETF already has a real yield of 1.4%.
How do you calculate that figure?

With inflation at 8.5%, it has to be returning nearly 10% to have a 1.4% real yield.

It shows a 4.23% 30 day SEC YIELD, so I wonder where the other 5.77% yield is from.

Does the SEC Yield on a TIPS fund not reflect the interest adjustment?

In general though, I think the real yield quoted for TIPS is often wrong. If we take the nominal rate and subtract the TIPS yield, I don't think we can call that the real yield as the nominal rate may be well below inflation.

Perhaps 'real yield' is a term to state the nominal rate minus the TIPS yield, but unrelated to the actual value of money.

Or am I confused?
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by jeffyscott »

typical.investor wrote: Tue Sep 27, 2022 4:11 pm Or am I confused?
Yes.

The past inflation has nothing to do with the current real yield. The real YTM is reported on the fund company website.

It's 2.24%, as of yesterday.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

McQ wrote: Tue Sep 27, 2022 4:01 pm Last week the 2045 TIPS was yielding about 1.60% real. Yesterday it was 1.77%, and today 1.91% at WSJ.com. Close enough for my purposes.

I did not see a way to buy TIPS online in my TD Ameritrade account (brokerage option within a retirement plan structure). For those in the same boat, there is LTPZ, an ETF holding TIPS with maturity greater than 15 years; because of the gap in issuance, maturity is currently 18 years and up. Be mindful of the duration, long TIPS are for holding long term.

I'm not thrilled about the 20 bp expense ratio, but then again, the bid-ask spread on these bonds is 5/32nds, about .0020 of the price, so ... whatever.
Ask yield on the Feb 2045 TIPS also was 1.91% at Fidelity today.

EDIT: (Used a different image hosting service.)

Image

Price bid/ask is quite large, at 0.47% (=ask/bid - 1):

Image

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Last edited by Kevin M on Tue Sep 27, 2022 6:05 pm, edited 1 time in total.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by aj76er »

McQ wrote: Tue Sep 27, 2022 4:01 pm I'm not thrilled about the 20 bp expense ratio, but then again, the bid-ask spread on these bonds is 5/32nds, about .0020 of the price, so ... whatever.
20bps compounded over 20yrs is about 4%. So, holding LTPZ to duration means you lose 4% of your total return. Or conversely, you’ll get to keep 96% of your total return after fees.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by whodidntante »

typical.investor wrote: Tue Sep 27, 2022 4:11 pm
whodidntante wrote: Sun Sep 18, 2022 11:11 pm You might get to make this decision. The STIP ETF already has a real yield of 1.4%.
How do you calculate that figure?

With inflation at 8.5%, it has to be returning nearly 10% to have a 1.4% real yield.

It shows a 4.23% 30 day SEC YIELD, so I wonder where the other 5.77% yield is from.

Does the SEC Yield on a TIPS fund not reflect the interest adjustment?

In general though, I think the real yield quoted for TIPS is often wrong. If we take the nominal rate and subtract the TIPS yield, I don't think we can call that the real yield as the nominal rate may be well below inflation.

Perhaps 'real yield' is a term to state the nominal rate minus the TIPS yield, but unrelated to the actual value of money.

Or am I confused?
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Random Musings »

..... not be surprised.

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Re: If long TIPS hit a real yield above 2.0% I will…

Post by jjj_22 »

typical.investor wrote: Tue Sep 27, 2022 4:11 pm In general though, I think the real yield quoted for TIPS is often wrong. If we take the nominal rate and subtract the TIPS yield, I don't think we can call that the real yield as the nominal rate may be well below inflation.

Perhaps 'real yield' is a term to state the nominal rate minus the TIPS yield, but unrelated to the actual value of money.

Or am I confused?
I think you're over-thinking it. Ignore whatever nominal rates are -- they're irrelevant.

Instead, image you can buy a 1 year TIPS at auction for par. (You can't but it makes the example nice.) It has a coupon of whatever, .75% say, your real yield is going to be, wait for it ... 0.75% (basically, maybe not exactly), because you're getting that 0.75% + whatever the inflation adjustment is. Easy.

The same principle applies if you buy at a discount, the math is just trickier. And if you buy on the secondary market too, but that math's even trickier because you have to account for the accrued inflation adjustment.

Basically, I don't think there's any reason not to trust the reported real yield on individual TIPs because the calculation is mechanical, based on the coupon, the purchase price, and the inflation adjusted principal. You could do it yourself, but I kind of trust the folks at Fidelity or wherever to do it for me, because presumably someone's checking their work.

As for funds, I don't know. Someone smarter can chime in.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by vineviz »

typical.investor wrote: Tue Sep 27, 2022 4:11 pm In general though, I think the real yield quoted for TIPS is often wrong. If we take the nominal rate and subtract the TIPS yield, I don't think we can call that the real yield as the nominal rate may be well below inflation.

Perhaps 'real yield' is a term to state the nominal rate minus the TIPS yield, but unrelated to the actual value of money.

Or am I confused?
I think you're confused.

When a TIPS is issued, the real yield is known with certainty and the Treasury is contractually obligated to pay that yield.

If you look at the auction results for a recent TIPS (e.g. https://www.treasurydirect.gov/instit/a ... 0818_3.pdf) the reported "yield" is the actual real yield.

The nominal yield minus the TIPS yield is not called the "real yield" but is called the "breakeven inflation rate".
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by #Cruncher »

jeffyscott wrote: Tue Sep 27, 2022 4:18 pmThe real YTM [of the STIP ETF] is reported on the fund company website.
It's 2.24%, as of yesterday [9/26/2022].
This is close to the 2.19% I get when I weight the yields reported on Tuesday's (9/27/2022) WSJ TIPS Quotes:

Code: Select all

  6       Col A    Col B    Col C     Col D      Col E
  7                              Index --->        0-5
  8   9/27/2022 <- As of          From --->    9/27/22
  9                                 To --->    9/27/27
 10                   Sum market value --->    947,360
 11             Weighted average yield --->     +2.19% <=== [*]
 12     Matures   Coupon  Mkt Val     Yield   % of Mkt

Code: Select all

 13   1/15/2023   0.125%   52,423   +3.603%     5.534%
 14   4/15/2023   0.625%   55,913   +3.198%     5.902%
 15   7/15/2023   0.375%   52,076   +2.428%     5.497%
 16   1/15/2024   0.625%   52,083   +2.473%     5.498%
 17   4/15/2024   0.500%   37,840   +2.286%     3.994%
 18   7/15/2024   0.125%   51,013   +2.030%     5.385%
 19  10/15/2024   0.125%   40,441   +1.992%     4.269%
 20   1/15/2025   2.375%   46,132   +2.136%     4.870%
 21   1/15/2025   0.250%   51,167   +2.103%     5.401%
 22   4/15/2025   0.125%   40,521   +2.121%     4.277%
 23   7/15/2025   0.375%   51,515   +1.932%     5.438%
 24  10/15/2025   0.125%   39,054   +1.893%     4.122%
 25   1/15/2026   2.000%   31,598   +2.010%     3.335%
 26   1/15/2026   0.625%   53,560   +1.970%     5.654%
 27   4/15/2026   0.125%   44,753   +1.991%     4.724%
 28   7/15/2026   0.125%   45,487   +1.817%     4.801%
 29  10/15/2026   0.125%   41,491   +1.819%     4.380%
 30   1/15/2027   2.375%   26,466   +1.903%     2.794%
 31   1/15/2027   0.375%   47,449   +1.887%     5.009%
 32   4/15/2027   0.125%   41,133   +1.879%     4.342%
 33   7/15/2027   0.375%   45,245   +1.790%     4.776%
* Calculated with the Excel SUMPRODUCT function:
2.19% = SUMPRODUCT(D13:D33, E13:E33)
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by protagonist »

Escapevelocity wrote: Mon Sep 19, 2022 4:34 pm
AnnetteLouisan wrote: Mon Sep 19, 2022 4:29 pm Yes is there some magic moment when a bell will ring and we will know it’s the ideal moment to buy medium or long term treasuries? Is it when the Fed says, “ok we’re done raising rates?” Will they actually say that? Or do we just have to intuit the right moment?

I’ve bought I bonds, 4 week auto rolling t-bills and 12 week auto rolling treasuries but I want to buy some 18 or 36 monthers or whatever is optimal.
This thread was made to talk about the unique opportunity with juicy yields on TIPS not nominal treasuries. The OP was trying to address how to leverage a potential 2% real yield on TIPS if and when that opportunity arises. The magic of locking in a long term position on TIPS at a 2% or similar real yield is that you never have to worry about losing purchasing power on your return.
Unless you need , or want, to sell within the next 20 years.
If OP wants to go out that long I would suggest a safer strategy would be to build a TIPS ladder going out 20 years. True, it may not be possible to get the same high yield again when some of the TIPS mature.
But a lot can happen to one's life in 20 years, and I think that tying one's money up and counting on holding to maturity that far out carries a fair amount of risk.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by billyt »

Some are satisfied with those inflation adjusted coupons and don't worry about the maturity date!
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Escapevelocity »

protagonist wrote: Wed Sep 28, 2022 8:35 am
Escapevelocity wrote: Mon Sep 19, 2022 4:34 pm
AnnetteLouisan wrote: Mon Sep 19, 2022 4:29 pm Yes is there some magic moment when a bell will ring and we will know it’s the ideal moment to buy medium or long term treasuries? Is it when the Fed says, “ok we’re done raising rates?” Will they actually say that? Or do we just have to intuit the right moment?

I’ve bought I bonds, 4 week auto rolling t-bills and 12 week auto rolling treasuries but I want to buy some 18 or 36 monthers or whatever is optimal.
This thread was made to talk about the unique opportunity with juicy yields on TIPS not nominal treasuries. The OP was trying to address how to leverage a potential 2% real yield on TIPS if and when that opportunity arises. The magic of locking in a long term position on TIPS at a 2% or similar real yield is that you never have to worry about losing purchasing power on your return.
Unless you need , or want, to sell within the next 20 years.
If OP wants to go out that long I would suggest a safer strategy would be to build a TIPS ladder going out 20 years. True, it may not be possible to get the same high yield again when some of the TIPS mature.
But a lot can happen to one's life in 20 years, and I think that tying one's money up and counting on holding to maturity that far out carries a fair amount of risk.
Yes, the ladder approach is a very solid way to do it. You could also invest in a TIPS fund with an appropriate average duration.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Escapevelocity »

CloseEnough wrote: Wed Sep 21, 2022 7:14 am
Northern Flicker wrote: Mon Sep 19, 2022 4:51 pm TIPS should be purchased instead of nominal bonds for one of these two reasons:

1. To match the asset to real liabilities.

2. To protect against inflation over the term of the bond turning out to be higher than what the market projects.
I see a third reason, which is diversification of the fixed income allocation in a portfolio. The decision to allocate a portion of FI to TIPS just becomes easier as real yield rises.
I think we are in an amazing moment right now with TIPS yields approaching 2% across the duration spectrum.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Zeno »

Following
Last edited by Zeno on Sat Oct 01, 2022 7:36 pm, edited 1 time in total.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

Yield on the 2045 TIPS dropped 11 basis points, to 1.80% when I pulled the quotes. Yields generally dropped across the yield curve:

Image.

As of right now I'm seeing 1.781% for min qty 50 and 1.779% for min qty 10 at Fidelity.

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Re: If long TIPS hit a real yield above 2.0% I will…

Post by McQ »

Zeno wrote: Wed Sep 28, 2022 12:09 pm It is threads like this that make me deeply appreciate the forum, as they are substantive and I always learn from them. I don't always understand them, but I try. I don't have a "bond brain" so any bond-related discussion makes my few remaining brain cells hurt. And McQ, thank you again.

I originally typed a response (with a question) to OP's post that ran on for 38,285 paragraphs, then tossed it aside in favor of the following:

We are going to continue to resist the urge to dabble in TIPs for various reasons: (1) our SORR "risk" window is 11 years in duration, which commences next year when I retire, and that is really the only period of time I worry about; (2) high risk tolerance -- we are very comfortable holding equity funds; (3) I deem us to be relatively "inflation durable" for various reasons (no debt, LBYM, etc.); (4) an aversion to holding individual "anything," from stocks to treasuries (e.g., I would never buy an individual TIP, iBond, what have you); (5) a lack of understanding of and comfort with TIP-related funds (short & intermediate duration in our case) particularly with respect to withdrawing from them -- i.e., if we were to buy an intermediate TIP-related fund and draw from it in the year 2025 would that defeat the whole purpose of the exercise?; (6) bulk savings (e.g., we are comfortable with our X so don't feel the need to fine tune or "react" to inflation, current or expected); (7) a deep-seated general aversion to doing anything today that smacks of responding to what may happen tomorrow; (8) a passion for buying stuff when it is unpopular -- to wit, we are happy to continue to buy BND, and even more so when people are piling on against it; and (9) a corollary passion for avoiding stuff that seems popular (e.g., iBonds, TIPs).

The BH approach has worked stupendously well for us since 1986 when we started our investment journey, and merely because hot dogs may cost $5,299 each in the year 2034 we aren't going to change course. I may regret our decision when (if?) I reach the year 2034 and have a hankering for a hot dog, but I will cross the bridge with my antiquated Weber grill in tow when I get to it. Stay the course we are.
Hello Zeno, enjoyed your post (maybe add back some more paragraphs :wink:

Although BND is the subject of much wailing and rending of garments here on BH, it is only down about 14% this year; awful in the context of its history, but not much "unpopularity," in absolute terms. LTPZ, however much TIPS get lauded here in the forum, is down over 30% YTD. I call that extremely unpopular. Makes me want to buy!
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Dude2 »

McQ wrote: Wed Sep 28, 2022 11:45 pm LTPZ, however much TIPS get lauded here in the forum, is down over 30% YTD. I call that extremely unpopular. Makes me want to buy!
Trying to wrap my head around this. If LTPZ has a duration of 20 years, doesn't this imply that, if
https://www.blackrock.com/us/individual/education/understanding-duration#:~:text=Generally%2C%20the%20higher%20the%20duration,drop%20as%20interest%20rates%20rise. wrote:As a general rule, for every 1% increase or decrease in interest rates, a bond's price will change approximately 1% in the opposite direction for every year of duration.
then, real rates have risen (30/20) = 1.5%?

I like to use FIPDX, e.g. the "total bond" of TIPS, and it's only down about 6% with a duration of 7-ish years, implying real rates have risen roughly (7/6) = 1.16%?

Maybe reported duration is problematic, and real yield curve has slope, but I'm happier to be in FIPDX. Is 0.34% additional real yield worth that drastic a change in volatility? I guess it must be, but I have no stomach for it.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by vineviz »

Dude2 wrote: Thu Sep 29, 2022 5:42 am Is 0.34% additional real yield worth that drastic a change in volatility? I guess it must be, but I have no stomach for it.
It all depends on your investment horizon, right?

If your investment horizon is closer to 20 years than to 7 year, you're taking more risk with FIPDX than you would with LPTZ and accepting a lower expected return to boot.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Dude2 »

vineviz wrote: Thu Sep 29, 2022 6:28 am
Dude2 wrote: Thu Sep 29, 2022 5:42 am Is 0.34% additional real yield worth that drastic a change in volatility? I guess it must be, but I have no stomach for it.
It all depends on your investment horizon, right?

If your investment horizon is closer to 20 years than to 7 year, you're taking more risk with FIPDX than you would with LPTZ and accepting a lower expected return to boot.
I do appreciate you, vineviz. This is just behavioral. When I put my money into FIPDX, it sticks. I leave it in there. When I use LTPZ, I end up bailing out. Doubt creeps in. However, I do agree with the statement a few posts back that this could be a great buying opportunity for somebody with the fortitude to hold 20 years.
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by #Cruncher »

Dude2 wrote: Thu Sep 29, 2022 5:42 am
McQ wrote: Wed Sep 28, 2022 11:45 pmLTPZ ... is down over 30% YTD.
Trying to wrap my head around this. If LTPZ has a duration of 20 years, doesn't this imply that, if ... a bond's price will change approximately 1% in the opposite direction for every year of duration. ... then, real rates have risen (30/20) = 1.5%?

I like to use FIPDX, e.g. the "total bond" of TIPS, and it's only down about 6% with a duration of 7-ish years, implying real rates have risen roughly (7/6) = 1.16%?

... Is 0.34% additional real yield worth that drastic a change in volatility?
I don't know where you're getting the "down about 6%" for FIPDX, Dude2. Also it's better to actually report the change in yields instead of trying to back into it by applying a rule-of-thumb formula. Here are the actual year-to-date returns for Fidelity's FIPDX and PIMCO's LTPZ from their websites. I'm also including the weighted average yields 12/31/2021 [1] and 9/28/2022 [2] of the "1+" and "15+" indexes which the two funds follow.

Code: Select all

                     FIPDX      LTPZ
                    -------   -------
Fund YTD Growth     -11.92%   -31.56%

                       1+        15+
                     ------    ------
Avg yld 12/31/2021   -1.52%    -0.48%
        09/28/2022   +1.62%    +1.70%
        Change       +3.14%    +2.18%
The average yield of the index FIPDX [3] follows has risen 3.14% points year-to-date, way different from your 1.16% points. You're closer with LTPZ. The average yield of the index it follows has risen 2.18% points, in the same ballpark as your 1.5% points.

Finally your "0.34% additional real yield" is the difference in your estimates of the change in yields for the two funds. More relevant I think would simply be the difference in today's yields. As of yesterday, the average yield of the more volatile [4] 15+ index is only 0.08% points above that of the 1+ index.
  1. 12/31/2021 average yields for the 1+ and 15+ indexes are from my Jan 2, 2022 post, Re: Consistent Yield & Duration to Help Choose TIPS Fund.
  2. 9/28/2022 average yields for the 1+ and 15+ indexes calculated based on Wednesday's WSJ TIPS Quotes:

    Code: Select all

      6       Col A    Col B    Col C     Col D      Col H    Col I
      7                              Index --->         1+      15+
      8   9/28/2022 <- As of          From --->    9/28/23  9/28/37
      9                                 To --->    9/28/52  9/28/52
     10                   Sum market value --->  1,689,499  315,591
     11             Weighted average yield --->     +1.62%           = SUMPRODUCT($D13:$D61, H13:H61)
                                                             +1.70%  = SUMPRODUCT($D13:$D61, I13:I61)
     12     Matures   Coupon  Mkt Val     Yield    --% of Mkt Val--

    Code: Select all

     13   1/15/2023   0.125%   52,423   +3.307%                    
     14   4/15/2023   0.625%   55,913   +3.004%                    
     15   7/15/2023   0.375%   52,076   +2.142%                    
     16   1/15/2024   0.625%   52,083   +2.139%     3.083%         
     17   4/15/2024   0.500%   37,840   +1.967%     2.240%         
     18   7/15/2024   0.125%   51,013   +1.693%     3.019%         
     19  10/15/2024   0.125%   40,441   +1.671%     2.394%         
     20   1/15/2025   2.375%   46,132   +1.816%     2.731%         
     21   1/15/2025   0.250%   51,167   +1.779%     3.029%         
     22   4/15/2025   0.125%   40,521   +1.807%     2.398%         
     23   7/15/2025   0.375%   51,515   +1.601%     3.049%         
     24  10/15/2025   0.125%   39,054   +1.566%     2.312%         
     25   1/15/2026   2.000%   31,598   +1.674%     1.870%         
     26   1/15/2026   0.625%   53,560   +1.648%     3.170%         
     27   4/15/2026   0.125%   44,753   +1.659%     2.649%         
     28   7/15/2026   0.125%   45,487   +1.490%     2.692%         
     29  10/15/2026   0.125%   41,491   +1.490%     2.456%         
     30   1/15/2027   2.375%   26,466   +1.585%     1.566%         
     31   1/15/2027   0.375%   47,449   +1.563%     2.808%         
     32   4/15/2027   0.125%   41,133   +1.550%     2.435%         
     33   7/15/2027   0.375%   45,245   +1.468%     2.678%         
     34   1/15/2028   1.750%   23,853   +1.562%     1.412%         
     35   1/15/2028   0.500%   47,182   +1.551%     2.793%         
     36   4/15/2028   3.625%   36,551   +1.601%     2.163%         
     37   7/15/2028   0.750%   44,638   +1.481%     2.642%         
     38   1/15/2029   2.500%   22,263   +1.559%     1.318%         
     39   1/15/2029   0.875%   44,012   +1.546%     2.605%         
     40   4/15/2029   3.875%   43,892   +1.571%     2.598%         
     41   7/15/2029   0.250%   46,222   +1.465%     2.736%         
     42   1/15/2030   0.125%   46,763   +1.500%     2.768%         
     43   7/15/2030   0.125%   49,151   +1.448%     2.909%         
     44   1/15/2031   0.125%   48,734   +1.461%     2.885%         
     45   7/15/2031   0.125%   51,178   +1.399%     3.029%         
     46   1/15/2032   0.125%   53,767   +1.417%     3.182%         
     47   4/15/2032   3.375%   10,766   +1.484%     0.637%         
     48   7/15/2032   0.625%   17,990   +1.365%     1.065%         
     49   2/15/2040   2.125%   25,640   +1.589%     1.518%   8.124%
     50   2/15/2041   2.125%   39,989   +1.668%     2.367%  12.671%
     51   2/15/2042   0.750%   29,712   +1.721%     1.759%   9.415%
     52   2/15/2043   0.625%   28,080   +1.765%     1.662%   8.898%
     53   2/15/2044   1.375%   32,000   +1.763%     1.894%  10.140%
     54   2/15/2045   0.750%   27,889   +1.780%     1.651%   8.837%
     55   2/15/2046   1.000%   26,034   +1.772%     1.541%   8.249%
     56   2/15/2047   0.875%   22,726   +1.756%     1.345%   7.201%
     57   2/15/2048   1.000%   22,998   +1.713%     1.361%   7.287%
     58   2/15/2049   1.000%   18,709   +1.661%     1.107%   5.928%
     59   2/15/2050   0.250%   15,411   +1.626%     0.912%   4.883%
     60   2/15/2051   0.125%   17,031   +1.578%     1.008%   5.396%
     61   2/15/2052   0.125%    9,374   +1.502%     0.555%   2.970%
                                                  -------- --------
    Sum                                           100.000% 100.000%
  3. Caution for anyone purchasing TIPS in a taxable account: FIPDX has not paid out any significant dividends so far this year. If it follows last year's procedure, it will pay out the entire amount in December. This means anyone buying FIPDX between now and then will pay more in Federal income tax than someone buying another "1+" TIPS fund that pays out dividends monthly or quarterly.
  4. I'm saying more "volatile" and not more "risky", so vineviz need not respond. :wink:
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vineviz
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by vineviz »

#Cruncher wrote: Thu Sep 29, 2022 8:21 am [*]I'm saying more "volatile" and not more "risky", so vineviz need not respond. :wink: [/list]
You're my new favorite.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Dude2
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Dude2 »

My apologies, and thank you for the detailed analysis, #Cruncher. I grabbed the 1 yr returns vs the YTD returns for both. Wasn't trying to mislead. Quite a difference between -6 and almost -12, so glad you pointed it out.
Then ’tis like the breath of an unfee’d lawyer.
Prudence
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Prudence »

Escapevelocity wrote: Mon Sep 19, 2022 4:34 pm
AnnetteLouisan wrote: Mon Sep 19, 2022 4:29 pm Yes is there some magic moment when a bell will ring and we will know it’s the ideal moment to buy medium or long term treasuries? Is it when the Fed says, “ok we’re done raising rates?” Will they actually say that? Or do we just have to intuit the right moment?

I’ve bought I bonds, 4 week auto rolling t-bills and 12 week auto rolling treasuries but I want to buy some 18 or 36 monthers or whatever is optimal.
This thread was made to talk about the unique opportunity with juicy yields on TIPS not nominal treasuries. The OP was trying to address how to leverage a potential 2% real yield on TIPS if and when that opportunity arises. The magic of locking in a long term position on TIPS at a 2% or similar real yield is that you never have to worry about losing purchasing power on your return.
To lock in the real yield and get the inflation protection do I need to buy the bonds and not the tips fund?
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vineviz
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by vineviz »

Prudence wrote: Thu Sep 29, 2022 11:07 am
Escapevelocity wrote: Mon Sep 19, 2022 4:34 pm
AnnetteLouisan wrote: Mon Sep 19, 2022 4:29 pm Yes is there some magic moment when a bell will ring and we will know it’s the ideal moment to buy medium or long term treasuries? Is it when the Fed says, “ok we’re done raising rates?” Will they actually say that? Or do we just have to intuit the right moment?

I’ve bought I bonds, 4 week auto rolling t-bills and 12 week auto rolling treasuries but I want to buy some 18 or 36 monthers or whatever is optimal.
This thread was made to talk about the unique opportunity with juicy yields on TIPS not nominal treasuries. The OP was trying to address how to leverage a potential 2% real yield on TIPS if and when that opportunity arises. The magic of locking in a long term position on TIPS at a 2% or similar real yield is that you never have to worry about losing purchasing power on your return.
To lock in the real yield and get the inflation protection do I need to buy the bonds and not the tips fund?
If you want to "lock in" the yields in a one-step maneuver then individual TIPS are the best choice. Just buy a ladder of these with maturities roughly corresponding to expected future spending needs and you're basically done.

You'll get some "lock in" benefit from a TIPS fund as well, and the longer the average duration the more "locked in" you are. Unfortunately there's just one long-term TIPS fund available, PIMCO 15+ Year US TIPS ETF (LTPZ), so investors with long investment horizons won't have many choices.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Kevin M
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Re: If long TIPS hit a real yield above 2.0% I will…

Post by Kevin M »

Kevin M wrote: Wed Sep 28, 2022 12:28 pm Yield on the 2045 TIPS dropped 11 basis points, to 1.80% when I pulled the quotes. Yields generally dropped across the yield curve:

Image.

As of right now I'm seeing 1.781% for min qty 50 and 1.779% for min qty 10 at Fidelity.

Kevin
We have basically seen a complete reversal of yesterday today. The 2045 TIPS ask yield is back to 1.91%.

Image

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