TIPS might soon be worth buying again

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William Million
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TIPS might soon be worth buying again

Post by William Million »

Good gauge is VIPSX, down 8.41% YTD. Below $12/share (It's current 13.25, down from around $15), many Bogleheads start "backing up the truck." Seems to be one of the few areas where devout Bogleheads engage in gentle market-timing.
livesoft
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Re: TIPS might soon be worth buying again

Post by livesoft »

Are you saying that the TIPS fund will drop another 10% soon?
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William Million
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Re: TIPS might soon be worth buying again

Post by William Million »

No, but I do think, given a particular dynamic, TIPS were overbought. I like to buy TIPS when the real interest rate pops above 2% and start backing up the truck above 2.5. I like to sell them when the rate falls below 1%.
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Re: TIPS might soon be worth buying again

Post by livesoft »

The blue line says we have a quite a long ways to go then: http://research.stlouisfed.org/fred2/series/DFII10
But I put a reminder in my calendar to check 2 years from now.
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jjustice
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Re: TIPS might soon be worth buying again

Post by jjustice »

If you're using VIPSX as a gauge, its current real SEC yield is -0.10%. Looks like a loser to me.
John
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nisiprius
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Re: TIPS might soon be worth buying again

Post by nisiprius »

jjustice wrote:If you're using [Vanguard Inflation-Protected Securities Fund] VIPSX as a gauge, its current real SEC yield is -0.10%. Looks like a loser to me.
John
Why? That's real yield. The SEC yield on Vanguard Total Bond Market Index Fund (VBMFX) is 1.97%. And as of July, "Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment." That looks to me like VIPSX and VBMFX are about the same.

Do you have some reason to believe inflation is going to run significantly less than 2%? If not, why do you see VIPSX as a "loser?"

Why can't VIPSX be seen as "about the same as VBMFX but with free insurance against unexpected inflation?" OK, yes, with, historically, higher volatility and liquidity issues in 2008-2009 but also historically higher overall return?

Here are some growth charts...

Image
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stevewolfe
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Re: TIPS might soon be worth buying again

Post by stevewolfe »

nisiprius wrote:Why? That's real yield. The SEC yield on Vanguard Total Bond Market Index Fund (VBMFX) is 1.97%. And as of July, "Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment." That looks to me like VIPSX and VBMFX are about the same.
This is right on to me.
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jjustice
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Re: TIPS might soon be worth buying again

Post by jjustice »

Both -0.10% real and 1.97% nominal look like losing propositions. You can buy my share of either.
John
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stevewolfe
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Re: TIPS might soon be worth buying again

Post by stevewolfe »

This too shall pass...
larmewar
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Re: TIPS might soon be worth buying again

Post by larmewar »

Bloomberg shows the 10 year TIPS (real) yield at 0.68%. So we still need quite a yield increase/price drop to get to 2%. We may, however, be getting close to having a non-zero fixed rate for I-bonds. Historically, the I-bond ran about 1% below the 10 yr TIPS real yield until the I-bond yield hit 0%.

Lar
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