TIPS auction April 20, 2017. Anyone participating?

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kolea
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TIPS auction April 20, 2017. Anyone participating?

Post by kolea » Tue Apr 18, 2017 4:01 pm

I want to buy some TIPS at the US Treasury auction this week. They are 5-year TIPS. This will be my first time doing this. Any tips (no pun intended!)? Any idea what the yield will come in at? I am making a non-competitive bid. Probably $16k. My plan is to ladder them, 1-year apart, so will repeat next year.
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Re: TIPS auction April 20, 2017. Anyone participating?

Post by #Cruncher » Wed Apr 19, 2017 4:02 am

Here is the Treasury's Offering Announcement. The $16 billion to be offered is the same as at the initial 5-year auction last year (as shown here on the 3rd row from the bottom).

kolea wrote:Any tips (no pun intended!)?
If you're planning to hold in an account like an IRA, this is reasonable for the most conservative part of your portfolio. However, if you were planning to hold outside such an account, I'd suggest an I Bond instead. Here is more commentary by member, tipswatcher.

kolea wrote:Any idea what the yield will come in at?
It's looking like the yield will come in about 0% or maybe a little higher. Yesterday's Daily Treasury Real Yield Curve shows 0.06% for the Constant Maturity 5-Year. And extrapolating from yesterday's WSJ TIPS Quotes projects a yield of 0%. [1]

Code: Select all

-0.348 April 2020
-0.174 April 2021 [2]
------
 0.000 Extrapolated estimate for April 2022

  1. Although it seems plausible, I wouldn't attempt to interpolate between the yields of the January 2022 and July 2022 TIPS. (This is because of the way the non-seasonally adjusted Consumer Price Index affects inflation indexation of TIPS maturing in different months. See the thread, Seasonal Indexation Impacts in TIPS Prices and Yields for more.)
  2. Since, until the auction, the April 2021 is the "on-the-run" 5-year TIPS, Bloomberg's United States Rates & Bonds will report its yield throughout the day.

kolea
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Re: TIPS auction April 20, 2017. Anyone participating?

Post by kolea » Wed Apr 19, 2017 10:14 pm

Thanks #Cruncher!

Yes, this will be purchased within an IRA. Some yield would be nice but goal #1 is preservation of real principal. So this is Cash++.
Kolea (pron. ko-lay-uh). Golden plover.

kolea
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Re: TIPS auction April 20, 2017. Anyone participating?

Post by kolea » Thu Apr 20, 2017 3:20 pm

As an FYI.... Price was $1008.65 and coupon = 0.125%. By my calculation that comes out to YTM = 0%.

At least it is not negative which I was worried about.
Kolea (pron. ko-lay-uh). Golden plover.

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Re: TIPS auction April 20, 2017. Anyone participating?

Post by FactualFran » Thu Apr 20, 2017 3:40 pm

kolea wrote:As an FYI.... Price was $1008.65 and coupon = 0.125%. By my calculation that comes out to YTM = 0%.

At least it is not negative which I was worried about.

According to the auction results, the yield was slightly negative, -0.049%.

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Re: TIPS auction April 20, 2017. Anyone participating?

Post by Angst » Thu Apr 20, 2017 3:45 pm

kolea wrote:As an FYI.... Price was $1008.65 and coupon = 0.125%. By my calculation that comes out to YTM = 0%.

At least it is not negative which I was worried about.

Maybe buy $10k of I Bonds and risk just $6k in TIPS? If you get a negative rate at auction, the I Bonds will do better, and they get to start life at 2.76% for the next 6 months.

[Edit] oops, today is Thursday! I see the results came in. What did you end up doing?

kolea
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Re: TIPS auction April 20, 2017. Anyone participating?

Post by kolea » Thu Apr 20, 2017 6:52 pm

I bought 14, so about $14k. Goal is to ladder them so I will repeat this next April although I am toying with the idea of 6-month rungs of $12k each for a total of $120k in the TIPS ladder.
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Re: TIPS auction April 20, 2017. Anyone participating?

Post by #Cruncher » Thu Apr 20, 2017 8:06 pm

kolea in this post wrote:... Price was $1008.65 and coupon = 0.125%. By my calculation that comes out to YTM = 0%. At least it is not negative which I was worried about.
Close to 0%; but still negative as you can see by netting the cash inflows of principal and interest against the cash (outflows) as shown in the auction results:

Code: Select all

(1,008.65) Price
(    0.04) Accrued interest
 1,000.00  Principal redemption in 5 years
     6.25  Interest = 1000 * 0.125% * 5 years
----------
(    2.44) Net cash outflow
From which we can roughly estimate the yield to be
-0.05% = (-2.44 / 1008.69) / 5 years which is close to the actual -0.049%.

kolea in previous post wrote:... I am toying with the idea of 6-month rungs of $12k each for a total of $120k in the TIPS ladder.
April is currently the only month 5-year TIPS mature. If you want a maturity every six months, you're limited to January and July. These are currently issued only with 10-year terms. So if you want a five year ladder with two evenly spaced rungs per year, you'd have to buy them all in the secondary market. (See Auction Frequency section on this TreasuryDirect web page for more information.)

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