30Day Yield Negative on TIPS Mutual Fund

 Posts: 1272
 Joined: Wed Oct 03, 2018 8:11 pm
30Day Yield Negative on TIPS Mutual Fund
Does this mean I am losing money by being invested in the fund?
I am referring to FIPDX. 30day yield is 0.96%. Am I paying money to own this fund? Lol.
I am referring to FIPDX. 30day yield is 0.96%. Am I paying money to own this fund? Lol.
Re: 30Day Yield Negative on TIPS Mutual Fund
“SEC Yield” has a specific definition. SEC Yield assumes all bonds will pay out including all coupons and maturity redemption value. But a major source of TIP yield is the inflation index. And since future inflation is unknown, SEC yield can’t make any assumptions about that portion of the yield.
Best estimate of fund yield is: [ .96% + future inflation]. So if we take a projected inflation rate of, say, 2% then yield is 1.04%. But one can’t know that in advance, only in retrospect, so SEC Yield has no way to include it.
Best estimate of fund yield is: [ .96% + future inflation]. So if we take a projected inflation rate of, say, 2% then yield is 1.04%. But one can’t know that in advance, only in retrospect, so SEC Yield has no way to include it.
Prediction is very difficult, especially about the future  Niels Bohr  To get the "risk premium", you really do have to take the risk  nisiprius

 Posts: 8058
 Joined: Fri Apr 10, 2015 12:29 am
Re: 30Day Yield Negative on TIPS Mutual Fund
I’m curious how they come up with a 30day SEC average real yield of 0.96% given the real yield of actual TIPS over the last 30 days:
https://www.treasury.gov/resourcecente ... &year=2020
https://www.treasury.gov/resourcecente ... &year=2020
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
Re: 30Day Yield Negative on TIPS Mutual Fund
It appears the Fidelity® InflationProtected Bond Index Fund (FIPDX) combines the real yield with the annualized change in the CPI over the previous 30 days. When I do this for three dates I get results fairly close to what Fidelity reports. (The estimated real yield is for the 1+ index from my post, Re: Consistent Yield & Duration to Help Choose TIPS Fund and the Reference CPIs are from the web page, Ref CPI for 2020.)Northern Flicker wrote: ↑Wed May 27, 2020 3:37 amI’m curious how they come up with a 30day SEC average real yield of 0.96% ...
Code: Select all
04/30/2020 05/21/2020 05/22/2020 05/26/2020
Est real yield (0.17%) (0.30%) (0.29%) (0.30%)
Ref CPI beg 257.93884 258.44233 258.46590 258.56017
Ref CPI end 258.65443 258.31477 258.29661 258.22397
Annual change 3.38% (0.60%) (0.80%) (1.58%)
Annual expense (0.05%) (0.05%) (0.05%) (0.05%)
Computed yield 3.16% (0.95%) (1.14%) (1.93%)
Reported yield 2.92% (0.96%) (1.15%) (1.87%)
Edited 5/28/2020 to add 5/26 column to table. (0.30% "Est real yield" for 5/26 is my own calculation.)
Re: 30Day Yield Negative on TIPS Mutual Fund
Thanks for your example but I am confused. On a treasury fund in order to calculate the real yield is it Real = SEC yield  future inflation. If true should the real yield of a TIPS fund be Real = SEC yield + inflation adjustment  future inflation. ThanksDavid Jay wrote: ↑Tue May 26, 2020 6:52 pm “SEC Yield” has a specific definition. SEC Yield assumes all bonds will pay out including all coupons and maturity redemption value. But a major source of TIP yield is the inflation index. And since future inflation is unknown, SEC yield can’t make any assumptions about that portion of the yield.
Best estimate of fund yield is: [ .96% + future inflation]. So if we take a projected inflation rate of, say, 2% then yield is 1.04%. But one can’t know that in advance, only in retrospect, so SEC Yield has no way to include it.
Re: 30Day Yield Negative on TIPS Mutual Fund
I guess I don’t understand your confusion. Perhaps it was that other posters are talking about “real” but I did not. Your calculation is correct, future real is nominally SEC yield for a TIPS fund. But I believe that the OP was trying to compare it to other funds, which is where applestooranges problem comes in.S_Track wrote: ↑Wed Jul 21, 2021 11:54 pmThanks for your example but I am confused. On a treasury fund in order to calculate the real yield is it Real = SEC yield  future inflation. If true should the real yield of a TIPS fund be Real = SEC yield + inflation adjustment  future inflation. ThanksDavid Jay wrote: ↑Tue May 26, 2020 6:52 pm “SEC Yield” has a specific definition. SEC Yield assumes all bonds will pay out including all coupons and maturity redemption value. But a major source of TIP yield is the inflation index. And since future inflation is unknown, SEC yield can’t make any assumptions about that portion of the yield.
Best estimate of fund yield is: [ .96% + future inflation]. So if we take a projected inflation rate of, say, 2% then yield is 1.04%. But one can’t know that in advance, only in retrospect, so SEC Yield has no way to include it.
You can make this calculation to Real based on your personal crystal ball, but the mutual fund company cannot make a guess. So “SEC yield” as calculated by the fund company is missing a primary component of TIPS yield. Comparing SEC yield of a TIPS fund to a nonTIPS fund is unhelpful unless you utilize your own inflatIon number.
Looking at the last couple of months, a .96% Real may be attractive compared to a treasury fund.
Prediction is very difficult, especially about the future  Niels Bohr  To get the "risk premium", you really do have to take the risk  nisiprius
Re: 30Day Yield Negative on TIPS Mutual Fund
The answer to your specific question is that that the real yield on TIPS is negative and has been for some time. Yes, you are losing money in real dollars but not in nominal dollars. This is true of all fixed income now. If you divide inflation out of most nominal interest rates you get negative real rates for those too. The mechanics for this are that when a TIPS is sold at auction with a positive coupon bidders pay more than the face value and when the security is redeemed at face value there is a loss.justsomeguy2018 wrote: ↑Tue May 26, 2020 1:28 pm Does this mean I am losing money by being invested in the fund?
I am referring to FIPDX. 30day yield is 0.96%. Am I paying money to own this fund? Lol.
Here is a listing of the real rate curve: https://www.treasury.gov/resourcecente ... =realyield
Note this result is the fortune of history and that there is no dodge to get around the facts of life.
Re: 30Day Yield Negative on TIPS Mutual Fund
I believe previous posts have explained that the real yields on a Treasury TIPS fund and a Treasury non TIPS fund of the same duration are not much different, true?
Re: 30Day Yield Negative on TIPS Mutual Fund
I think the risk premium for inflation protected bonds has been tiny most of the time. Maybe someone has numbers for that.
Re: 30Day Yield Negative on TIPS Mutual Fund
thanks that is exactly what I was trying to ask, basically we are right back where we started when looking at the real yield for a TIPS funds. Although we don't know what Future inflation will be it does not matter since it will be canceled by the inflation adjustment.David Jay wrote: ↑Thu Jul 22, 2021 7:42 amI guess I don’t understand your confusion. Your calculation is correct, future real is nominally SEC yield for a TIPS fund.S_Track wrote: ↑Wed Jul 21, 2021 11:54 pmThanks for your example but I am confused. On a treasury fund in order to calculate the real yield is it Real = SEC yield  future inflation. If true should the real yield of a TIPS fund be Real = SEC yield + inflation adjustment  future inflation. ThanksDavid Jay wrote: ↑Tue May 26, 2020 6:52 pm “SEC Yield” has a specific definition. SEC Yield assumes all bonds will pay out including all coupons and maturity redemption value. But a major source of TIP yield is the inflation index. And since future inflation is unknown, SEC yield can’t make any assumptions about that portion of the yield.
Best estimate of fund yield is: [ .96% + future inflation]. So if we take a projected inflation rate of, say, 2% then yield is 1.04%. But one can’t know that in advance, only in retrospect, so SEC Yield has no way to include it.