30 year TIPs auction Feb 21 (announcement Feb 14)

[grok87]

Real rates have ticked up somewhat recently and I plan to participate in this auction (i.e. buy).
Current 29 year tips rates are 0.53%. I am going to predict the auction rate hits 0.625%.
cheers,

[jon-nyc]

That would be great. I'm also a buyer and until recently was thinking 0.5.

[bigspender]

This is a fun game. Lets guess the real rate. I am think .625 is a little high. I'm gonna guess .5 as the coupon and the real rate will be about .52

[Doc]

Real rates have ticked up somewhat recently and I plan to participate in this auction (i.e. buy).
Current 29 year tips rates are 0.53%. I am going to predict the auction rate hits 0.625%.cheers,

Based on Grok's excellent prediction I'm going to sell my long TIPS
before the price drops.

[Browser]

Real rates have ticked up somewhat recently and I plan to participate in this auction (i.e. buy).
Current 29 year tips rates are 0.53%. I am going to predict the auction rate hits 0.625%.
cheers,

What do you plan to do with the money when this bond matures?

[grok87]

Real rates have ticked up somewhat recently and I plan to participate in this auction (i.e. buy).
Current 29 year tips rates are 0.53%. I am going to predict the auction rate hits 0.625%.cheers,

Based on Grok's excellent prediction I'm going to sell my long TIPS
before the price drops.

Thanks for the kind words Doc. As we both know however, past performance is not indicative of future performance. I fear that my 0.625% yield call may amount to no more than wishful thinking in this case...

All- I think Doc is referring to these threads:

viewtopic.php?t=64679

viewtopic.php?t=71927

cheers,

[grok87]

Real rates have ticked up somewhat recently and I plan to participate in this auction (i.e. buy).
Current 29 year tips rates are 0.53%. I am going to predict the auction rate hits 0.625%.
cheers,

What do you plan to do with the money when this bond matures?

Well at that point i will be retired so the plan is to use it for living expenses

[Browser]

Or maybe the nursing home?

[grok87]

Or maybe the nursing home?

exactly!

[Doc]

All- I think Doc is referring to these threads:

viewtopic.php?t=64679

viewtopic.php?t=71927

cheers,

Actually I was just saying that two different people can take the opposite action based on the same data.

My TIPS IPS calls for me to go all the way out to the ten when the real yield is above 2.5. I'm older than Grok and don't expect to be around when the thirty matures.

[Aptenodytes]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

[Browser]

Is this the "Be My Valentine" TIP? How Sweet. A Kiss from Uncle Sammy....

[grok87]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

It's more of a "liabilty matching" argument ala Bodie.
I don't think they are all that attractive at current real yields. I own much less than i did a while back. But I still think it makes sense to own some.
cheers,

[grok87]

so the 29 year tips real yield is 0.59% this morning. So I think we are already more than halfway there. Basically the 0.625% real yield for the 30 year tips auction is looking like a likely scenario.

[Aptenodytes]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

It's more of a "liabilty matching" argument ala Bodie.
I don't think they are all that attractive at current real yields. I own much less than i did a while back. But I still think it makes sense to own some.
cheers,

How it that superior to buying 10-year TIPS and replacing them when they mature with the maturity that is at the best location on the yield curve ten years from now? Seems like your liabilities are still matched but you avoid paying such a high price for the long maturity.

[grok87]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

It's more of a "liabilty matching" argument ala Bodie.
I don't think they are all that attractive at current real yields. I own much less than i did a while back. But I still think it makes sense to own some.
cheers,

How it that superior to buying 10-year TIPS and replacing them when they mature with the maturity that is at the best location on the yield curve ten years from now? Seems like your liabilities are still matched but you avoid paying such a high price for the long maturity.

well the risk is that rates may still be low then too. Let's work a specific example:

a) Right now the 10 year tip is yielding about -0.6% and the 30 year is yielding about +0.6%.
b) the best estimate of the future yield curve is the current yield curve. in 10 years the 10 year tip may be yielding more than -0.6% but it may not be.
c) so if you go with a strategy of buying the 10 year tip now and roll it over twice, you may end up with a negative real return for the 30 year period. with the 30 year tip at least you have a positive real return.

cheers,

[Aptenodytes]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

It's more of a "liabilty matching" argument ala Bodie.
I don't think they are all that attractive at current real yields. I own much less than i did a while back. But I still think it makes sense to own some.
cheers,

How it that superior to buying 10-year TIPS and replacing them when they mature with the maturity that is at the best location on the yield curve ten years from now? Seems like your liabilities are still matched but you avoid paying such a high price for the long maturity.

well the risk is that rates may still be low then too. Let's work a specific example:

a) Right now the 10 year tip is yielding about -0.6% and the 30 year is yielding about +0.6%.
b) the best estimate of the future yield curve is the current yield curve. in 10 years the 10 year tip may be yielding more than -0.6% but it may not be.
c) so if you go with a strategy of buying the 10 year tip now and roll it over twice, you may end up with a negative real return for the 30 year period. with the 30 year tip at least you have a positive real return.

cheers,

I understand all that. My point is that the price for getting that guaranteed 30-year return is extremely high, so I wonder why anyone would pay it. Nudging your return into positive territory doesn't seem like a sound reason to me, given the huge hit you have to take on duration in order to get it.

The information I glean from the yield curve is that rolling over a ten-year note twice is going to return more than buying a 30-year note now. That is, the curve is extremely flat.

[grok87]

I don't see how the 30-year is attractive with the present yield curve. Assume the auction settles at a yield of 0.6%. That is about 1.2 percentage points higher than the yield on the 10-year TIPs. That means you are getting about 6 basis points for each additional year of maturity. I don't see how you justify that.

It's more of a "liabilty matching" argument ala Bodie.
I don't think they are all that attractive at current real yields. I own much less than i did a while back. But I still think it makes sense to own some.
cheers,

How it that superior to buying 10-year TIPS and replacing them when they mature with the maturity that is at the best location on the yield curve ten years from now? Seems like your liabilities are still matched but you avoid paying such a high price for the long maturity.

well the risk is that rates may still be low then too. Let's work a specific example:

a) Right now the 10 year tip is yielding about -0.6% and the 30 year is yielding about +0.6%.
b) the best estimate of the future yield curve is the current yield curve. in 10 years the 10 year tip may be yielding more than -0.6% but it may not be.
c) so if you go with a strategy of buying the 10 year tip now and roll it over twice, you may end up with a negative real return for the 30 year period. with the 30 year tip at least you have a positive real return.

cheers,

I understand all that. My point is that the price for getting that guaranteed 30-year return is extremely high, so I wonder why anyone would pay it. Nudging your return into positive territory doesn't seem like a sound reason to me, given the huge hit you have to take on duration in order to get it.

The information I glean from the yield curve is that rolling over a ten-year note twice is going to return more than buying a 30-year note now. That is, the curve is extremely flat.

can you give an example please showing the math-i.e. the information you glean from the yield curve?

[Aptenodytes]

I understand all that. My point is that the price for getting that guaranteed 30-year return is extremely high, so I wonder why anyone would pay it. Nudging your return into positive territory doesn't seem like a sound reason to me, given the huge hit you have to take on duration in order to get it.

The information I glean from the yield curve is that rolling over a ten-year note twice is going to return more than buying a 30-year note now. That is, the curve is extremely flat.

can you give an example please showing the math-i.e. the information you glean from the yield curve?

I am exhibiting the problem of overconfidence in one's own ability. I'm looking at the simple rule of thumb that if you extend a year of maturity in exchange for 20 BPS or more you'll come out ahead. 6 BPS/year is what you get moving from 10 to 30 year TIPS, so that tells my simple brain "don't go there."

In response to your reply I looked at the historical yield data at http://www.treasury.gov/resource-center ... ation.aspx and see that my intuitive generalization about the shifting yield curves isnt quite right. For one thing, the curve has steepened a bit over the last several months. For another, the biggest shift in TIPs has been change in the average yield, not the steepneess.

I searched on Swedroe's statement of the rule of thumb, and noticed that he says to worry less about capturing a minimum of 20 BPS per year when it comes to TIPs. I don't know if 6 is above the TIPs threshold or not. I doubt it, because he has been pretty consistently recommending that people aim for the 10-year TIPs based on the lower increment in yield one gets moving out to 30.

http://seekingalpha.com/article/1081411 ... -for-yield:

As to maturity, as I said earlier, we generally stick with ladders of about 10 years, sometimes a bit longer and sometimes a bit shorter, depending on the client’s ability to take term risk, as well as the slope of the yield curve. As a general rule of thumb for taxable accounts, we’re willing to consider adding a year of maturity if we pick up an extra 20 basis points in yield. For municipals it might be an extra 16 basis points per year. For TIPS it would be a lot less because you don’t have the inflation risk. For example, the current 7-year nominal Treasury yield is about 1 percent, and the 10-year is about 1.6 percent. So we would go to 10 years because we are earning an additional 20 basis points per year.

I'm sticking with my decision to accumulate 10-year TIPs and stay away from the 30-years, but I'll be less categorical about what I say about the yield curve.

My main point that I would generalize is this: when extending term pay careful attention to how much extra yield you get per year of additional maturity and don't be overly swayed by the absolute level of the higher yield.

[#Cruncher]

can you give an example please showing the math-i.e. the information you glean from the yield curve?

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6%, holds until maturity and reinvests the coupons at that yield, one ends up with $1,197 in current dollars (1000 X 1.006 ^ 30). If instead one does the same with a 10-year yielding -0.6% one ends up with $942 in current dollars at maturity (1000 X 0.994 ^ 10). One could then use the proceeds to buy the Feb 2043 in the after market. If the real yield at that time is +1.2%, one would break even (942 X 1.012 ^ 20 = 1196).

Since currently 20-year TIPS are yielding about +0.2%, this means their yields would have to rise about 1.0% point over the next 10 years to break even. No one knows whether this will happen, or even how likely this would be. But at least it provides a basis for making a decision one will be comfortable with. I agree with Aptenodytes and will be more comfortable with the 10-year.

b) the best estimate of the future yield curve is the current yield curve.

This is probably true over a short period. But I don't think it's true for 10 years. For that length of time, historical average might be a better estimate. The simple average yield on all 10-year TIPS auctions through the one last month is about 1.9%. For the years 2003 - 2011 (which excludes the early periods when they were unusually high and recent periods when they were negative) the simple average is about 1.7%. I think either of these is a good estimate of what 10-year yields will be in 2023. (See the 2nd to right-most column in Results for 10-Year TIPS Auctions.)

[grayfox]

can you give an example please showing the math-i.e. the information you glean from the yield curve?

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6%, holds until maturity and reinvests the coupons at that yield, one ends up with $1,197 in current dollars (1000 X 1.006 ^ 30). If instead one does the same with a 10-year yielding -0.6% one ends up with $942 in current dollars at maturity (1000 X 0.994 ^ 10). One could then use the proceeds to buy the Feb 2043 in the after market. If the real yield at that time is +1.2%, one would break even (942 X 1.012 ^ 20 = 1196).

Wow! $1,000 in 30-years grows to only $1,197 after inflation. Pathetic. If you are saving for retirement, I figure you would need a savings rate of about 44% at 0.6% TIPS rate. Locking in a gain of 1.197x over 30-years makes no dollars or sense.

[Doc]

I'm sticking with my decision to accumulate 10-year TIPs and stay away from the 30-years, but I'll be less categorical about what I say about the yield curve.

Wow! $1,000 in 30-years grows to only $1,197 after inflation. Pathetic.

In my opinion one of the best attributes of TIPS is to lock in attractive yields for long periods without taking on the accompany inflation risk you get with nominal Treasuries. Why would I want to lock in unattrative yields for a long period. I can get the short term inflation protection by using short Treasuries. Waiting a few years with yields this low doesn't cost me much at all.

[Browser]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

[Doc]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

Browser, I hope you are wrong. If true that would also mean that nominal Treasuries would not not have a positive real yield either. That would make it very hard to fund the government in the long run.

[Browser]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

Browser, I hope you are wrong. If true that would also mean that nominal Treasuries would not not have a positive real yield either. That would make it very hard to fund the government in the long run.

Perhaps you could explain further why this would be true. I haven't had my coffee yet.

[grayfox]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

That is something to think about. One could ask the question, why should a risk-free asset have any real yield at all?

You put your gold in a vault for safe keeping, so that it is there when you need it. You probably should be paying someone to guard it. I can see a theoretical reason it should have negative real return. Maybe positive real return on Treasuries is the anomaly.

[Doc]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

Browser, I hope you are wrong. If true that would also mean that nominal Treasuries would not not have a positive real yield either. That would make it very hard to fund the government in the long run.

Perhaps you could explain further why this would be true. I haven't had my coffee yet.

Nominal Yield = Real Yield + Inflation

TIPS Breakeven = Inflation(Estimate) +/- Insurance/Liquidity

The insurance and liquidity are only minor factors and are often ignored altogether.

Nominal and by analogy real yields are low because of low world wide economic activity and central bank actions to stimulate those economies. This cannot continue forever or the bond markets would become entirely dysfunctional and couldn't support governments, commercial enterprises or even mortgages.

(Did you miss the "nominal ... real" qualification? )

[Browser]

Frankly, I've decided that TIPs will never have a real yield noticeably in excess of 0% again. Except perhaps if there is some major financial dislocation as in 2008. Their value as inflation insurance is the primary reason they are purchased by institutional investors, who drive the market. Get used to it.

That is something to think about. One could ask the question, why should a risk-free asset have any real yield at all?

You put your gold in a vault for safe keeping, so that it is there when you need it. You probably should be paying someone to guard it. I can see a theoretical reason it should have negative real return. Maybe positive real return on Treasuries is the anomaly.

Yeah, that's kinda how I was thinking about it. TIPS had a coupon rate as high as 3% or more, I believe, when they were first offered and were not well understood by institutional investors. That has steadily shrunk to near zero even on the 30-year. The coupon is the real yield. I see no reason it can't stay there forever, meaning they offer zero real yield, their return matching the inflation rate. It seems plausible that the breakeven rates could even rise above market expectations of inflation, meaning that TIPs could be priced to give lower yields than nominal treasuries.

[Browser]

TIPs might be worth owning right now because the risk premium for owning them is still positive. But if you believe that the risk premium on TIPS is destined to go negative (which I do), TIPS will get a windfall gain from the shift. After that might be a good time to sell 'em.

[tipswatcher]

I also feel a bit tempted by this 30-year, but I'll probably pass. I was wondering if any of you financial gurus could tell me what the duration is on a 30-year TIPS? I would assume it is massively high, since even small swings really affect the price. When a 30-year TIPS gets back to at least 1% over inflation, I would start to get interested. This is far below historical rates, but of course the Treasury skipped 10 years of issues (when I would have been buying, darn.)

My feeling is that a TIPS as a buy and hold investment is a very conservative and predictable investment. I don't watch the secondary market on all my current holdings, and I won't watch it on future purchases either. Many of you will disagree, and have great reasons why, but this is my super-safe portfolio allocation.

Does it make more sense to buy short-term TIPS and take your lumps, and reinvest later at higher rates? Or just allocate some today to a 30-year with a positive yield. Well, it all depends on when Treasury rates return to 'normal'. That may be years. Or, maybe the trend has started.

http://tipswatch.com/2013/02/13/next-up ... b-21-2013/

[Browser]

Frankly, I'd only buy it to cover spending liabilities I might have in 30 years. That whopping .5% real YTM is only realizable theoretically because you have to reinvest all those divvy dents to get it. You going to be doing that? Then you won't be getting the .5%. It will be closer to nada percent.

[hsv_climber]

When 30-year TIPS had 3% real yield, 30-year nominals had 6% nominal rate. Given US projected inflation of ~3% at that time, it was a wash.

[#Cruncher]

I was wondering if any of you ... could tell me what the duration is on a 30-year TIPS?

As shown in the table below the modified duration would be 27.3%. This assumes issuance tomorrow at the 0.625% yield-to-maturity (YTM) grok87 estimates. For comparison I've included the current 10-year TIPS and the three previous 30-year TIPS using WSJ TIPS Quotes 2/14/2013. I've also added columns showing how much the price of each TIPS would decline if its YTM were to instantly rise 1, 2, or 3 percentage points.

Code: Select all

                                                                   Price Chg if YTM Rises
                                  Yield to  Years to   Modified   ------------------------
  Matures    Coupon     Price     Maturity    Mature   Duration     1.0%     2.0%     3.0%
----------   ------   ---------   --------    ------   --------   ------   ------   ------
01/15/2023   0.125%   107.25000   (0.584%)     9.914      9.9%     -9.4%   -17.9%   -25.5%
02/15/2040   2.125%   141.78125    0.474%     27.000     21.8%    -19.3%   -34.3%   -46.1%
02/15/2041   2.125%   142.68750    0.491%     28.000     22.5%    -19.8%   -35.1%   -46.9%
02/15/2042   0.750%   105.31250    0.552%     29.000     26.1%    -22.8%   -39.9%   -53.0%
02/15/2043   0.625%   100.00000    0.625%     30.000     27.3%    -23.7%   -41.3%   -54.6%

[hsv_climber]

Vanguard now shows this message when someone is trying to buy bonds at auction.

On August 5, 2011, Standard & Poor's lowered its rating on long-term U.S. government debt to AA+. On July 13, 2011, Moody's placed the Aaa bond rating of the U.S. government on review for possible downgrade.

There is a good news for small investors @ Vanguard, which I've apparently missed before, Vanguard now allows to buy @ auctions a minimum of $1K. It used to be $10k.

[Scotttheking]

Fidelity now shows it with a 0% coupon and won't let me buy it on their site...yikes.

[grok87]

Fidelity now shows it with a 0% coupon and won't let me buy it on their site...yikes.

i see what you mean. Perhaps just because its a holiday today? hopefully they will fix tomorrow,

[nisiprius]

I'm in my sixties. I just can't do it. I can't convince myself that I have a good chance of being able to hold such a bond to maturity.

[Scotttheking]

I'm in my sixties. I just can't do it. I can't convince myself that I have a good chance of being able to hold such a bond to maturity.

It's the liability matching portion of my mom's portfolio. Target is $40k in 2010 dollars maturing each year from age 85 to age 100. I don't know that TIPS will stay viable for the next 13 years to complete the purchases, but that's the current plan.

[Bustoff]

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6%, holds until maturity and reinvests the coupons at that yield, one ends up with $1,197 in current dollars (1000 X 1.006 ^ 30).

I don't mean to intrude, but I'm reading the TIPS threads in an attempt to understand them. Is the above example saying that after 30 years you only get back a total of $197 ?

Thanks

[dbr]

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6%, holds until maturity and reinvests the coupons at that yield, one ends up with $1,197 in current dollars (1000 X 1.006 ^ 30).

I don't mean to intrude, but I'm reading the TIPS threads in an attempt to understand them. Is the above example saying that after 30 years you only get back a total of $197 ?

Thanks

I think it says you get back $1197 not $197. Those are current, aka real, dollars, after inflation. $197 is what you earn in 30 years at 0.6%.

[Bustoff]

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6%, holds until maturity and reinvests the coupons at that yield, one ends up with $1,197 in current dollars (1000 X 1.006 ^ 30).

I don't mean to intrude, but I'm reading the TIPS threads in an attempt to understand them. Is the above example saying that after 30 years you only get back a total of $197 ?

Thanks

I think it says you get back $1197 not $197. Those are current, aka real, dollars, after inflation. $197 is what you earn in 30 years at 0.6%.

But that $197 return doesn't reflect the inflation component right ?

[petercooperjr]

Fidelity now shows it with a 0% coupon and won't let me buy it on their site...yikes.

i see what you mean. Perhaps just because its a holiday today? hopefully they will fix tomorrow,

I'd tried buying it on their site on Friday and got the same error. I'd sent them an email, and they said to call them up. When I did that Friday evening, the rep. thought that something odd was happening, and that I should call back Tuesday morning when there was somebody in who might be able to fix it.

The fact that the rep. was surprised when he tried it makes me guess that not a lot of people are interested in buying it. I'm hoping that'll lead to a higher-than-expected yield, but that's probably me being overly optimistic.

[#Cruncher]

If one buys $1,000 of the Feb 2043 TIPS yielding +0.6% ... one ends up with $1,197 in current dollars ...

I don't mean to intrude, but ... Is the above example saying that after 30 years you only get back a total of $197?

Not an intrusion at all, Bustoff, since the subject of this thread is the Feb 2043 TIPS being auctioned. I probably should have used the term "real dollars" instead of the ambiguous term "current dollars". What I mean is that after 30 years one would end up with $1,197 in Feb 2013 dollars or of Feb 2013 purchasing power.

Whatever the CPI increases will be in addition. For example, if the CPI increases at a constant rate of 2.56% annually for the next 30 years, one would end up with $2,555 in nominal Feb 2043 dollars (1197 X 1.0256 ^ 30).

By the way, 2.56% is presently the "break-even inflation rate" on 30-year nominal Treasuries, which are currently yielding 3.18%* (1.0318 / 1.006 - 1 = 2.56%). If one bought $1,000 of this nominal Treasury and reinvested its interest payments at the same 3.18%, one would end up with $2,558 (1000 X 1.0318 ^ 30) -- the same, apart from rounding, as with the TIPS.

The fact that the [Fidelity] rep. was surprised ... makes me guess that not a lot of people are interested in buying it. I'm hoping that'll lead to a higher-than-expected yield ...

I believe that orders placed with Fidelity and other brokers are submitted as "non-competitive" bids at the auction. These comprise only a small portion of the total amount being auctioned. For example, at the auction last February of the 30-year TIPS only $44 million of the $9 billion sold were non-competitive. It was the $8,956 million of competitive bids from mutual funds, foreign governments, and other large buyers that determined the yield. (See Feb 16, 2042 Auction Results PDF file.)

* Source: Feb 15, 2013 on Daily Treasury Yield Curve Rates.

[grok87]

Fidelity now shows it with a 0% coupon and won't let me buy it on their site...yikes.

i see what you mean. Perhaps just because its a holiday today? hopefully they will fix tomorrow,

I'd tried buying it on their site on Friday and got the same error. I'd sent them an email, and they said to call them up. When I did that Friday evening, the rep. thought that something odd was happening, and that I should call back Tuesday morning when there was somebody in who might be able to fix it.

The fact that the rep. was surprised when he tried it makes me guess that not a lot of people are interested in buying it. I'm hoping that'll lead to a higher-than-expected yield, but that's probably me being overly optimistic.

from your lips to God's ears. 0.625% here we come!

[grok87]

I also feel a bit tempted by this 30-year, but I'll probably pass. I was wondering if any of you financial gurus could tell me what the duration is on a 30-year TIPS? I would assume it is massively high, since even small swings really affect the price. When a 30-year TIPS gets back to at least 1% over inflation, I would start to get interested. This is far below historical rates, but of course the Treasury skipped 10 years of issues (when I would have been buying, darn.)

My feeling is that a TIPS as a buy and hold investment is a very conservative and predictable investment. I don't watch the secondary market on all my current holdings, and I won't watch it on future purchases either. Many of you will disagree, and have great reasons why, but this is my super-safe portfolio allocation.

Does it make more sense to buy short-term TIPS and take your lumps, and reinvest later at higher rates? Or just allocate some today to a 30-year with a positive yield. Well, it all depends on when Treasury rates return to 'normal'. That may be years. Or, maybe the trend has started.

http://tipswatch.com/2013/02/13/next-up ... b-21-2013/

tipswatcher,
here's what i'm doing:

1) Buying some 30 year tips. 0.5%-0.6% is not great but hey at least its positive and the money is to fund retirement liabilities

2) Buying all the ibonds i can

3) buying year pen fed credit union cds
here are the yields
6 Month 0.75% 0.75%**
1-Year 1.238% 1.25%
2-Year 1.583% 1.60%
3-Year 1.829% 1.85%
4-Year 1.830% 1.85%
5-Year 1.879% 1.90%
7-Year 1.980% 2.00%

the nice thing is that their is a guaranteed right to withdraw early at a prespecified penalty- 6 months interest for 4 year and shorter. 1 years interest for 4 years and longer. right now i think the 4 years look attractive. so if inflation takes off and rates rise you can get out for a very small hit and reinvest at the higher rates.
cheers,

[petercooperjr]

The fact that the [Fidelity] rep. was surprised ... makes me guess that not a lot of people are interested in buying it. I'm hoping that'll lead to a higher-than-expected yield ...

I believe that orders placed with Fidelity and other brokers are submitted as "non-competitive" bids at the auction. These comprise only a small portion of the total amount being auctioned.

Oh, yes, I did know that but it is good to make sure everybody does. The amount of inquiries from individuals buying them has to be pretty small. I was just imagining what could be, not thinking that it actually meant a whole lot.

The rates at auction on the 30-year for the past couple years have pleasantly surprised me, so it might this time too. But it certainly might not.

[petercooperjr]

I called Fidelity this morning.This time, they offered to just take the trade (and refund the commission due to it being a phone order), as long as I was warned that the yield might be negative. That seems to be why they're not letting the web site do the order, too, is that there's a chance that it could be negative. They also thought I should have more than $1000 ready in the account per bond (like $1150) just in case, since they didn't want the order to get cancelled. (Though if it's a negative yield, perhaps I'd want it to be canceled.) I don't know if they're just covering themselves since with yields so low they don't want to make any promises and want people to know that there's a chance of "losing money", or if they know something I don't. Looks to be interesting.

[Bustoff]

Thanks for the explanation #cruncher !

In light of this I'm even more concerned following Vanguards rec to assign my 70% bond allocation exclusively to Total Bond Fund.

Let me see if I understand this correctly. Total Bond Fund's SEC yield is 1.54%. The current rate of inflation is 1.7%.
So TBF's real yield is -0.16, or -0.16 x 30 = -4.8% after 30 years.

But with Tii 2043 you get +0.6 real x 30 = +18% after 30 years.

Is that correct ?

[grok87]

I called Fidelity this morning.This time, they offered to just take the trade (and refund the commission due to it being a phone order), as long as I was warned that the yield might be negative. That seems to be why they're not letting the web site do the order, too, is that there's a chance that it could be negative. They also thought I should have more than $1000 ready in the account per bond (like $1150) just in case, since they didn't want the order to get cancelled. (Though if it's a negative yield, perhaps I'd want it to be canceled.) I don't know if they're just covering themselves since with yields so low they don't want to make any promises and want people to know that there's a chance of "losing money", or if they know something I don't. Looks to be interesting.

The Fidelitty folks are confused. That's unusual given they usually have very good customer service.
I just placed my order with Vanguard without any problems. The when issued market is showing a 0.60% yield for the auction, so my 0.625% forecast is looking good (did I mention I almost won the 2012 boglehead S&P 500 contest tooo!) Coupon is expected to be 0.50%

cheers,

[petercooperjr]

The Fidelitty folks are confused. That's unusual given they usually have very good customer service.

That does seem to sum it up. They did even at some point say something to the effect of "All TIPS have negative yields right now," which I thought was not quite true yet.

I suppose that they just really don't get all that many requests for direct TIPS, and so they're not as versed in them.