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eurowizard
Joined: 10 May 2008
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 Posted: Tue Nov 03, 2009 10:55 pm Post subject: 30 Year TIPS |
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I read in a few posts about 30 year TIPS at a 2.5% real rate. Sounds pretty good to me. Can anyone provide more information on these? My google-fu suggests they come in $10k increments.
Is it better to buy them at auction or secondary or it doesnt matter?
I have 3 potential places to store them - USAA, Vanguard, and Schwab. Which would be the best for individual TIPS in an IRA?
What happens to the yield? Does it go into my MMF?
Whats the general thoughts on these 30 year TIPS? |
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tfb
Joined: 19 Feb 2007
Posts: 3087
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| Posted: Tue Nov 03, 2009 11:42 pm Post subject: Re: 30 Year TIPS |
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| eurowizard wrote: | I read in a few posts about 30 year TIPS at a 2.5% real rate. Sounds pretty good to me. Can anyone provide more information on these? My google-fu suggests they come in $10k increments.
Is it better to buy them at auction or secondary or it doesnt matter?
I have 3 potential places to store them - USAA, Vanguard, and Schwab. Which would be the best for individual TIPS in an IRA?
What happens to the yield? Does it go into my MMF?
Whats the general thoughts on these 30 year TIPS? |
The longest on the market is one maturing in 2032. Treasury may issue new 30-year TIPS in the near future but they haven't done so yet.
They will announce new auction schedule tomorrow (Nov. 4). Watch this link:
http://treasury.gov/offices/do....refunding/
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stratton
Joined: 04 Mar 2007
Posts: 6233
Location: Puget Sound
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| Posted: Wed Nov 04, 2009 4:49 am Post subject: |
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With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
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nisiprius
Joined: 26 Jul 2007
Posts: 6999
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
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| Posted: Wed Nov 04, 2009 7:49 am Post subject: |
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Decided this was worth a separate thread: Treasury's email reminder service for auctions.
Or go directly to the Treasury mailing list page.
Worthwhile if you're interested in or curious about buying individual TIPS but find it hard to stay on top of the auction calendar.
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tarnation
Joined: 26 Apr 2007
Posts: 849
Location: Huntsville, AL
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| Posted: Wed Nov 04, 2009 9:07 am Post subject: |
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Good news: 30 yr TIPS are back on the menu in Feb.
Bad news: 20yrs are not on the menu at all!! 
I guess that means I'll be buying more TIPS funds now.
http://treasury.gov/offices/do....hedule.pdf
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faltuk1
Joined: 09 Oct 2008
Posts: 15
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| Posted: Wed Nov 04, 2009 9:14 am Post subject: |
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| stratton wrote: | With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
If you are planning to keep TIPS for atleast 5 to 10 years, the accumulated inflation doesn't really matter, unless you expect net deflation during the holding period of 5 to 10 years. |
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Doc
Joined: 24 Feb 2007
Posts: 1307
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| Posted: Wed Nov 04, 2009 9:31 am Post subject: |
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This change may have major significance for TIPS funds also. To the extent a fund is benchmarking the market it's duration will increase significantly over time. It will also allow the gap in a long ladder portfolio to persist.
See WSJ Article "OFF THE RUN: TIPS Market Tips: More Supply, Liquidity In 2010"
| Quote: | | Senior fund managers from Vanguard Group Inc., Fidelity Investments and Pacific Investment Management Co., three of the world's biggest investors in TIPS, expect an increase in auction sizes and frequencies for TIPS, while the 20-year TIPS should be replaced by the 30-year TIPS. |
(Google "Min Zeng tips" to find article.)
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eurowizard
Joined: 10 May 2008
Posts: 844
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| Posted: Wed Nov 04, 2009 10:03 am Post subject: |
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I am 28 and have all the retirement savings I will be able to save until I turn about 35 and pay off all these high interest graduate school debt.
I am seriously considering putting all of my retirement IRA money (about $50k) into 5 of these 30 year TIPS in February. I've done pretty well and beaten the market by quite a bit, with about a net annualized gain of 3% over the last 5 years. I don't think I can be so lucky market timing in the future.k
If I can get a 2.5% tax-free real return on this 30 year TIPS that would seal the deal for me! The only problem is that I cant reinvest the yield at the same guaranteed rate (I dont believe) so I'll have to spit the dividends off into a TIPS fund or MMF within the IRA. |
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Doc
Joined: 24 Feb 2007
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| Posted: Wed Nov 04, 2009 10:35 am Post subject: NOVEMBER 2009 QUARTERLY REFUNDING STATEMENT |
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NOVEMBER 2009 QUARTERLY REFUNDING STATEMENT
| Quote: | Changes to the TIPS Auction Calendar
To potentially improve liquidity in the TIPS program, extend the average maturity of the portfolio, and better capture the premium associated with inflation protection, Treasury will replace its 20-year TIPS offering with 30-year TIPS.
The 30-year TIPS will be issued on a semi-annual basis, with an initial offering in February, followed by a reopening of the original issue in August 2010. Similar to the 5-year TIPS offering, the security will mature mid-month, but will settle at the end of the month. The first 30-year TIPS auction will be on Monday, February 22, 2010, for settlement on Friday, February 26, 2010.
Additionally, market participants have communicated to Treasury that more frequent auctions would help improve liquidity in the TIPS market. Given Treasury’s commitment to this program, and our plan to gradually increase TIPS issuance, we are considering making further changes to the TIPS auction calendar. Any changes will be made in close consultation with market participants and will be done in a transparent manner, consistent with our operating framework of being regular and predictable. |
http://www.treas.gov/offices/d....0747am.pdf
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tfb
Joined: 19 Feb 2007
Posts: 3087
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| Posted: Wed Nov 04, 2009 11:39 am Post subject: Re: NOVEMBER 2009 QUARTERLY REFUNDING STATEMENT |
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| Treasury wrote: | better capture the premium associated with inflation protection, Treasury will replace its 20-year TIPS offering with 30-year TIPS.
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When Treasury captures a premium, it's not necessarily good news to the investors.
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Doc
Joined: 24 Feb 2007
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| Posted: Wed Nov 04, 2009 12:16 pm Post subject: Re: NOVEMBER 2009 QUARTERLY REFUNDING STATEMENT |
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| tfb wrote: | | Treasury wrote: | better capture the premium associated with inflation protection, Treasury will replace its 20-year TIPS offering with 30-year TIPS.
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When Treasury captures a premium, it's not necessarily good news to the investors. |
Wouldn't that depend on whether or not those investors were US taxpayers?
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stratton
Joined: 04 Mar 2007
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Location: Puget Sound
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| Posted: Wed Nov 04, 2009 6:54 pm Post subject: |
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| faltuk1 wrote: | | stratton wrote: | With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
If you are planning to keep TIPS for atleast 5 to 10 years, the accumulated inflation doesn't really matter, unless you expect net deflation during the holding period of 5 to 10 years. |
True. The purchasing power stays the same, but this is about as close to a riskless free lunch as you can get.
Paul |
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Doc
Joined: 24 Feb 2007
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| Posted: Thu Nov 05, 2009 10:32 am Post subject: |
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| stratton wrote: | | faltuk1 wrote: | | stratton wrote: | With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
If you are planning to keep TIPS for atleast 5 to 10 years, the accumulated inflation doesn't really matter, unless you expect net deflation during the holding period of 5 to 10 years. |
True. The purchasing power stays the same, but this is about as close to a riskless free lunch as you can get.
Paul |
You still have (real) interest rate risk. A riskless free lunch (breakfast?) would still be 90 day Treasury bills. That's why even the real interest rate curve has a positive slope.
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stratton
Joined: 04 Mar 2007
Posts: 6233
Location: Puget Sound
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| Posted: Thu Nov 05, 2009 11:57 pm Post subject: |
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| Doc wrote: | | stratton wrote: | | faltuk1 wrote: | | stratton wrote: | With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
If you are planning to keep TIPS for atleast 5 to 10 years, the accumulated inflation doesn't really matter, unless you expect net deflation during the holding period of 5 to 10 years. |
True. The purchasing power stays the same, but this is about as close to a riskless free lunch as you can get.
Paul |
You still have (real) interest rate risk. A riskless free lunch (breakfast?) would still be 90 day Treasury bills. That's why even the real interest rate curve has a positive slope. |
We wre discussing the par price floor. You're bringing up a whole new subject. BTW the TIPS real yield curve is usually flat: as in a 4 basis point difference between 5 and 20 year TIPS real yield. Right now it is insanely steep.
Paul |
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stratton
Joined: 04 Mar 2007
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Location: Puget Sound
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| Posted: Fri Nov 06, 2009 12:00 am Post subject: |
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Hopefully we'll get some stripped TIPS.
Paul |
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Doc
Joined: 24 Feb 2007
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| Posted: Fri Nov 06, 2009 10:40 am Post subject: |
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| stratton wrote: | | Doc wrote: | | stratton wrote: | | faltuk1 wrote: | | stratton wrote: | With deflation lurking around you probably want new issues where there isn't any accumulated inflation portage of the TIPS bond. Existing 30 year TIPS on the market can their large inflation portion "consumed" by deflation.
Paul |
If you are planning to keep TIPS for atleast 5 to 10 years, the accumulated inflation doesn't really matter, unless you expect net deflation during the holding period of 5 to 10 years. |
True. The purchasing power stays the same, but this is about as close to a riskless free lunch as you can get.
Paul |
You still have (real) interest rate risk. A riskless free lunch (breakfast?) would still be 90 day Treasury bills. That's why even the real interest rate curve has a positive slope. |
We wre discussing the par price floor. You're bringing up a whole new subject. BTW the TIPS real yield curve is usually flat: as in a 4 basis point difference between 5 and 20 year TIPS real yield. Right now it is insanely steep.
Paul |
The par price floor is real. Whether there is much of a (price) premium for this can't be known because the on the run issues also have a liquidity premium and you can't separate the two. I would suspect that deflation fears have waned and that any premium is small but you can't know. If you want to say it is zero and therefore the par floor insurance is free OK. But if it is low because the market thinks there is no likelihood of deflation it's at most a free (continental) breakfast.
I don't understand your yield curve comment. From Fidelity the bid yield for the January 2015, 2025 and 2032 are .89, 1.90 and 2.05% respectively. I don't consider that flat. In Jan 2005, 2006, 2007 and 2008 the 5 to 20 constant maturity spread was 90, flat, flat and 80 bps respectively. The nominal yield curve was also flat when the real curve was flat. This is not typical behavior.
Apparently stripped TIPS were created for a special client some time in the past but there was essentially no market for them. I would not hold my breath. Even a flat yield curve might bite you by the time the market is big enough to justify a stripped TIPS.
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stratton
Joined: 04 Mar 2007
Posts: 6233
Location: Puget Sound
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| Posted: Fri Nov 06, 2009 6:55 pm Post subject: |
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| Doc wrote: | I don't understand your yield curve comment. From Fidelity the bid yield for the January 2015, 2025 and 2032 are .89, 1.90 and 2.05% respectively. I don't consider that flat. In Jan 2005, 2006, 2007 and 2008 the 5 to 20 constant maturity spread was 90, flat, flat and 80 bps respectively. The nominal yield curve was also flat when the real curve was flat. This is not typical behavior.
Apparently stripped TIPS were created for a special client some time in the past but there was essentially no market for them. I would not hold my breath. Even a flat yield curve might bite you by the time the market is big enough to justify a stripped TIPS. |
The yield curve is normally quite a bit flatter than now. We need more data since 50% of your past observations are flat.
Stripped TIPS were common enough that an investment book from 1999 to 2001 (?) I was looking at mentioned they were an option. I'm sure you're correct they were a special one-off, but it was big enough the book author thought they would be more "common."
Paul |
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Doc
Joined: 24 Feb 2007
Posts: 1307
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| Posted: Fri Nov 06, 2009 8:07 pm Post subject: |
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| stratton wrote: | | Doc wrote: | I don't understand your yield curve comment. From Fidelity the bid yield for the January 2015, 2025 and 2032 are .89, 1.90 and 2.05% respectively. I don't consider that flat. In Jan 2005, 2006, 2007 and 2008 the 5 to 20 constant maturity spread was 90, flat, flat and 80 bps respectively. The nominal yield curve was also flat when the real curve was flat. This is not typical behavior.
Apparently stripped TIPS were created for a special client some time in the past but there was essentially no market for them. I would not hold my breath. Even a flat yield curve might bite you by the time the market is big enough to justify a stripped TIPS. |
The yield curve is normally quite a bit flatter than now. We need more data since 50% of your past observations are flat.
Stripped TIPS were common enough that an investment book from 1999 to 2001 (?) I was looking at mentioned they were an option. I'm sure you're correct they were a special one-off, but it was big enough the book author thought they would be more "common."
Paul |
Sorry about the amount of data Paul but that is all there is on the Treasury's website http://www.treas.gov/offices/d....ical.shtml
Since the data is limited you need to make an analogy with nominal bonds. Yield curves in general usually have a positive slope due to interest rate risk. The interest rate risk includes inflation expectations for nominal bonds but not for TIPS. This makes the real yield curve lower for TIPS but should not affect the postive slope.
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Doc
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