Thursday's (6/23) 5 yr Tips auction, who is participating?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

I am currently planning to participate in Thursday's (6/23) 5 yr TIPS reopened auction. What I am trying to decide is do I buy 6 months worth of expenses and then buy again at the October auction or should I consider another amount? So who is participating and how months expenses are you planning to purchase?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Svensk Anga
Posts: 1048
Joined: Sun Dec 23, 2012 5:16 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Svensk Anga »

I bought this issue last Friday on the secondary market. I got about 0.5% real yield and considered that good enough to go for a full year’s drawdown needs. Funds came out of a stable value fund paying 1.5%, so I figure I got a substantial yield boost as long as this inflation lasts or until the SVF yield catches up.

I’ve come to prefer secondary to auction purchases. When I started my ladder I was buying 10-year TIPS and it seemed that the Fed open market committee had to shake up the fixed income market with its pronouncements the day before every auction. I prefer to see just what I am buying before pressing the enter button rather than take my chances with the auction.
User avatar
dual
Posts: 977
Joined: Mon Feb 26, 2007 7:02 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by dual »

Svensk Anga wrote: Tue Jun 21, 2022 12:47 pm I’ve come to prefer secondary to auction purchases. When I started my ladder I was buying 10-year TIPS and it seemed that the Fed open market committee had to shake up the fixed income market with its pronouncements the day before every auction. I prefer to see just what I am buying before pressing the enter button rather than take my chances with the auction.
here's what the Tipswatch columnist said about the five year auction in April
Today’s auction result continued a several-months trend of new and reopened TIPS getting higher-than-expected yields at auction. For investors, this is a welcome trend.
and his comment on the 10 year tips auction in May
The auction, which closed at 1 p.m. EDT, got a real yield to maturity of 0.232%, a very high result based on where this same TIPS was trading just a hour before the auction closed. The bid-to-cover ratio was 2.24, a very low number that indicates investor demand was weak. Conclusion: We have entered a new era for Treasury auctions, with the Federal Reserve no longer bolstering demand (and lowering yields) by aggressively buying up supply.
User avatar
Svensk Anga
Posts: 1048
Joined: Sun Dec 23, 2012 5:16 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Svensk Anga »

dual wrote: Tue Jun 21, 2022 1:14 pm
here's what the Tipswatch columnist said about the five year auction in April
Today’s auction result continued a several-months trend of new and reopened TIPS getting higher-than-expected yields at auction. For investors, this is a welcome trend.
The five year TIPS real yield was negative as recently as 6/9/22. If it can jump from there to 0.54% on 6/17, there is no reason to suspect that it cannot decline just as fast. It was 0.73% on 6/14, so you might say that the current trend is toward lower yields. :?

https://home.treasury.gov/resource-cent ... nth=202206
User avatar
dual
Posts: 977
Joined: Mon Feb 26, 2007 7:02 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by dual »

so you might say that the current trend is toward lower yields. :?
As the tipswatch columnist observed, the 800 pound gorilla Fed is not buying up inventory any more. so hope springs eternal. we shall see in a couple of days.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Thanks for the replies. I am a bit surprised BH don't have a greater interest in this auction, but maybe the general preference is bond funds.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

I entered an order for 10 at auction. I bought 10 on secondary at a real yield of 0.49% last week. I have been buying TIPS from 1-year to 5-year maturity on secondary market, and plan to continue doing so.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
gasman
Posts: 885
Joined: Mon Jul 30, 2007 6:13 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by gasman »

I am in. Going for a very large purchase if yields don’t change significantly tomorrow.
User avatar
dual
Posts: 977
Joined: Mon Feb 26, 2007 7:02 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by dual »

I will be buying some in my IRA.
bridge2benefits
Posts: 27
Joined: Sat May 07, 2022 10:53 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by bridge2benefits »

I have an order in for this one as well - filling the 2027 rung in my ladder. Fingers crossed for a nice yield!

I'm not opposed to buying on the secondary market and in fact I tried last week, but wasn't able to get an order filled at my desired quantity. I probably could have gotten one to go through if I had kept trying, but with the auction coming up, I decided to just let it play out there.
bpg1234
Posts: 323
Joined: Fri Jun 24, 2011 6:53 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by bpg1234 »

So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
In my case no because I am buying as part of liability matching. But I will probably debate with myself how many months of expenses I should commit to this auction. FWIW, I believe the next 5 year TIPS auction is 10/20/22.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Svensk Anga wrote: Tue Jun 21, 2022 12:47 pm I bought this issue last Friday on the secondary market. I got about 0.5% real yield and considered that good enough to go for a full year’s drawdown needs. Funds came out of a stable value fund paying 1.5%, so I figure I got a substantial yield boost as long as this inflation lasts or until the SVF yield catches up.

I’ve come to prefer secondary to auction purchases. When I started my ladder I was buying 10-year TIPS and it seemed that the Fed open market committee had to shake up the fixed income market with its pronouncements the day before every auction. I prefer to see just what I am buying before pressing the enter button rather than take my chances with the auction.
Looking at CUSPID 91280FD5 on the secondary market maturing 4/15/28 and a yield of +0.59%. Any opinion on this issue?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
bpg1234
Posts: 323
Joined: Fri Jun 24, 2011 6:53 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by bpg1234 »

TheTimeLord wrote: Wed Jun 22, 2022 9:07 am
Svensk Anga wrote: Tue Jun 21, 2022 12:47 pm I bought this issue last Friday on the secondary market. I got about 0.5% real yield and considered that good enough to go for a full year’s drawdown needs. Funds came out of a stable value fund paying 1.5%, so I figure I got a substantial yield boost as long as this inflation lasts or until the SVF yield catches up.

I’ve come to prefer secondary to auction purchases. When I started my ladder I was buying 10-year TIPS and it seemed that the Fed open market committee had to shake up the fixed income market with its pronouncements the day before every auction. I prefer to see just what I am buying before pressing the enter button rather than take my chances with the auction.
Looking at CUSPID 91280FD5 on the secondary market maturing 4/15/28 and a yield of +0.59%. Any opinion on this issue?
CUSPID is "912810FD5". I'm still just getting involved with TIPS so learning and interested in opinons on this, as well as, tomorrow's auction as we're retired and have no TIPS to date but looking for additional inflation protection above and beyond our $220K we have accumulated in iBonds.
bpg1234
Posts: 323
Joined: Fri Jun 24, 2011 6:53 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by bpg1234 »

In looking at Vanguard brokerage site on this CUSPID 912810FD5 the principal amount to purchase this $50K face value is $105,337.35 of which $609.99 is accrued interest. Any information would be appreciated.
Fremdon Ferndock
Posts: 334
Joined: Fri Dec 24, 2021 12:26 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Fremdon Ferndock »

Vanguard website bond purchase indicating an indicative yield of 0.44 as of today (6/22). I'm in, but was hoping for something nearer to 0.5.
The Indicative Yield is an estimate based off the most recently issued Treasury security of similar maturity that is currently available among active platform participants. The actual treasury auction results will often vary from the Indicative Yield and you may receive at auction an actual yield that is higher or lower than the Indicative Yield. An Indicative Yield may not display for Treasury Inflation Protected Securities (TIPS) and will not display for Treasury Floating Rate Notes (FRNs).
Risk cannot be reduced -- it can only be changed from one form to another
Fremdon Ferndock
Posts: 334
Joined: Fri Dec 24, 2021 12:26 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Fremdon Ferndock »

I had trouble deciding how much to buy at this auction. Tipswatch expects that the real yields might go still higher and I agree that it looks that way if the Fed keeps raising rates. Of course, you never know so you have to hedge your bets. So, I'm putting about 20% of what I have allocated for TIPs into this one, with plans to put another 20% - 40% into the 10-year in July. Then I may allocate the remainder to the 5-year and 10-year later in 2022.
Risk cannot be reduced -- it can only be changed from one form to another
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
AerialWombat
Posts: 2679
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by AerialWombat »

TheTimeLord wrote: Wed Jun 22, 2022 8:29 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
In my case no because I am buying as part of liability matching. But I will probably debate with myself how many months of expenses I should commit to this auction. FWIW, I believe the next 5 year TIPS auction is 10/20/22.
I'm just starting to learn more about liability matching. It's starting to seem like I'm effectively already doing LMP to some extent, and that I'm a perfect candidate for it because I know exactly how much I need for the next 25+ years, broken into specific tranches.

Are you planning to hold TIPS to maturity as part of your liability matching?
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

AerialWombat wrote: Wed Jun 22, 2022 12:57 pm
TheTimeLord wrote: Wed Jun 22, 2022 8:29 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
In my case no because I am buying as part of liability matching. But I will probably debate with myself how many months of expenses I should commit to this auction. FWIW, I believe the next 5 year TIPS auction is 10/20/22.
I'm just starting to learn more about liability matching. It's starting to seem like I'm effectively already doing LMP to some extent, and that I'm a perfect candidate for it because I know exactly how much I need for the next 25+ years, broken into specific tranches.

Are you planning to hold TIPS to maturity as part of your liability matching?
Yes, definitely. Also, I have included estimated income taxes (from TaxCaster, as good a guess as any) in my expenses.
https://turbotax.intuit.com/tax-tools/c ... taxcaster/
Last edited by TheTimeLord on Wed Jun 22, 2022 1:05 pm, edited 1 time in total.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
AerialWombat
Posts: 2679
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by AerialWombat »

Kevin M wrote: Wed Jun 22, 2022 11:59 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
The 10 you bought last week were secondary market? Was there a reason you didn't just wait until next week's auction?
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
AerialWombat
Posts: 2679
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by AerialWombat »

TheTimeLord wrote: Wed Jun 22, 2022 12:59 pm
AerialWombat wrote: Wed Jun 22, 2022 12:57 pm
TheTimeLord wrote: Wed Jun 22, 2022 8:29 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
In my case no because I am buying as part of liability matching. But I will probably debate with myself how many months of expenses I should commit to this auction. FWIW, I believe the next 5 year TIPS auction is 10/20/22.
I'm just starting to learn more about liability matching. It's starting to seem like I'm effectively already doing LMP to some extent, and that I'm a perfect candidate for it because I know exactly how much I need for the next 25+ years, broken into specific tranches.

Are you planning to hold TIPS to maturity as part of your liability matching?
Yes, definitely.
Got it, thanks!
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

AerialWombat wrote: Wed Jun 22, 2022 1:03 pm
Kevin M wrote: Wed Jun 22, 2022 11:59 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
The 10 you bought last week were secondary market? Was there a reason you didn't just wait until next week's auction?
Just remember this is a reopened auction so from what I can tell it is very similar to buying on the secondary market as the price will already have a bit of inflation adjustment in it and I believe the TIPS mature in 4 years and 10 months not 5 years.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
AerialWombat
Posts: 2679
Joined: Tue May 29, 2018 1:07 pm
Location: Cashtown, Cashylvania

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by AerialWombat »

TheTimeLord wrote: Wed Jun 22, 2022 1:08 pm
AerialWombat wrote: Wed Jun 22, 2022 1:03 pm
Kevin M wrote: Wed Jun 22, 2022 11:59 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
The 10 you bought last week were secondary market? Was there a reason you didn't just wait until next week's auction?
Just remember this is a reopened auction so from what I can tell it is very similar to buying on the secondary market as the price will already have a bit of inflation adjustment in it and I believe the TIPS mature in 4 years and 10 months not 5 years.
Right. There's also something about accrued interest being baked in, and that you're paying for that now, but get it "reimbursed" at the next regular interest payment. I'm still reading, trying to wrap my brain around how that works. These are somewhat complicated securities, maybe a bit too much so for those of us in the smooth-brained ape category.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

AerialWombat wrote: Wed Jun 22, 2022 1:17 pm
TheTimeLord wrote: Wed Jun 22, 2022 1:08 pm
AerialWombat wrote: Wed Jun 22, 2022 1:03 pm
Kevin M wrote: Wed Jun 22, 2022 11:59 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
The 10 you bought last week were secondary market? Was there a reason you didn't just wait until next week's auction?
Just remember this is a reopened auction so from what I can tell it is very similar to buying on the secondary market as the price will already have a bit of inflation adjustment in it and I believe the TIPS mature in 4 years and 10 months not 5 years.
Right. There's also something about accrued interest being baked in, and that you're paying for that now, but get it "reimbursed" at the next regular interest payment. I'm still reading, trying to wrap my brain around how that works. These are somewhat complicated securities, maybe a bit too much so for those of us in the smooth-brained ape category.
I am a simple man and would prefer the round numbers offered at original auctions. The next 5 year TIPS auction is 10/20. Here is the schedule.
https://home.treasury.gov/system/files/ ... Q22022.pdf
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

AerialWombat wrote: Wed Jun 22, 2022 1:03 pm
Kevin M wrote: Wed Jun 22, 2022 11:59 am
bpg1234 wrote: Wed Jun 22, 2022 6:44 am So latest indicative yield is down to around .4% this morning. Does this change anyone's thoughts on this?
The 4/15/2027 ask was 0.44% at Fidelity when I checked. Right now I'm seeing 0.437% for min qty 10 (best yield), no depth of book.

I bought 10 last week at 0.49%, and currently am leaving my auction order for 10 more open, since this is somewhat of an experiment.

Kevin
The 10 you bought last week were secondary market? Was there a reason you didn't just wait until next week's auction?
The only place to buy this issue last week was on secondary, so yes.

I bought the 10 last week because I liked the yield of close to 0.5%, and didn't want to wait until the auction to see what the yield would be, and till June 30 for it to settle. I then decided to buy 10 more at auction, somewhat as an experiment to see what the yield difference would be. Currently I'm seeing 0.432% ask for min qty 100 and 0.480% bid, so midpoint about 0.455%. Since there is no bid/ask spread at auction, I'd think the midpoint would be a reasonable estimate for the auction price. So if yield increases by about 4 basis points, we'll be back to 0.49%, and hopefully we'll get an auction surprise and get a higher yield.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 1:23 pm I am a simple man and would prefer the round numbers offered at original auctions. The next 5 year TIPS auction is 10/20. Here is the schedule.
https://home.treasury.gov/system/files/ ... Q22022.pdf
What does "round numbers" mean?
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Kevin M wrote: Wed Jun 22, 2022 1:46 pm
TheTimeLord wrote: Wed Jun 22, 2022 1:23 pm I am a simple man and would prefer the round numbers offered at original auctions. The next 5 year TIPS auction is 10/20. Here is the schedule.
https://home.treasury.gov/system/files/ ... Q22022.pdf
What does "round numbers" mean?
Basically no inflation adjustment. But I may be making an incorrect assumption that the principal will start at $1,000 or $100 on TD.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 1:50 pm
Kevin M wrote: Wed Jun 22, 2022 1:46 pm
TheTimeLord wrote: Wed Jun 22, 2022 1:23 pm I am a simple man and would prefer the round numbers offered at original auctions. The next 5 year TIPS auction is 10/20. Here is the schedule.
https://home.treasury.gov/system/files/ ... Q22022.pdf
What does "round numbers" mean?
Basically no inflation adjustment. But I may be making an incorrect assumption.
You are. The inflation adjustment (index ratio or IR) used for the Treasury auction of reopened issues will be whatever it is at settlement, which will be exactly the same as a secondary market trade that settles on the same day. The IR at auction of this TIPS will be higher than it was when I bought it last week, because it goes up daily as long as there was inflation from March to April, since those are the CPI numbers used for purchases in June.

The IR on the auction issue date is 1.02376. It was 1.00424 when this issue was originally issued on 4/29/2022. It was somewhere between those two when I bought it last week. It is 1.02244 if you buy today for settlement tomorrow.

If you like low index ratios (e.g., are worried about net deflation over five years), then you can buy the more recently issued TIPS on the secondary market.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Kevin M wrote: Wed Jun 22, 2022 2:01 pm
TheTimeLord wrote: Wed Jun 22, 2022 1:50 pm
Kevin M wrote: Wed Jun 22, 2022 1:46 pm
TheTimeLord wrote: Wed Jun 22, 2022 1:23 pm I am a simple man and would prefer the round numbers offered at original auctions. The next 5 year TIPS auction is 10/20. Here is the schedule.
https://home.treasury.gov/system/files/ ... Q22022.pdf
What does "round numbers" mean?
Basically no inflation adjustment. But I may be making an incorrect assumption.
You are. The inflation adjustment (index ratio or IR) used for the Treasury auction of reopened issues will be whatever it is at settlement, which will be exactly the same as a secondary market trade that settles on the same day. The IR at auction of this TIPS will be higher than it was when I bought it last week, because it goes up daily as long as there was inflation from March to April, since those are the CPI numbers used for purchases in June.

The IR on the auction issue date is 1.02376. It was 1.00424 when this issue was originally issued on 4/29/2022. It was somewhere between those two when I bought it last week. It is 1.02244 if you buy today for settlement tomorrow.

If you like low index ratios (e.g., are worried about net deflation over five years), then you can buy the more recently issued TIPS on the secondary market.

Kevin
My round number comment was referring to why I prefer original auctions to reopened auctions.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 2:07 pm My round number comment was referring to why I prefer original auctions to reopened auctions.
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Kevin M wrote: Wed Jun 22, 2022 2:16 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:07 pm My round number comment was referring to why I prefer original auctions to reopened auctions.
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
So you are saying TIPS are not sold at Face/Par value at the original auctions?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Svensk Anga
Posts: 1048
Joined: Sun Dec 23, 2012 5:16 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Svensk Anga »

TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm
Kevin M wrote: Wed Jun 22, 2022 2:16 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:07 pm My round number comment was referring to why I prefer original auctions to reopened auctions.
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
So you are saying TIPS are not sold at Face/Par value at the original auctions?
I think they are at par at the origination auctions, but by the settlement date they have accumulated some inflation adjustment and so will settle slightly above par. (Or below par, if there had been deflation.)
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Svensk Anga wrote: Wed Jun 22, 2022 3:12 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm
Kevin M wrote: Wed Jun 22, 2022 2:16 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:07 pm My round number comment was referring to why I prefer original auctions to reopened auctions.
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
So you are saying TIPS are not sold at Face/Par value at the original auctions?
I think they are at par at the origination auctions, but by the settlement date they have accumulated some inflation adjustment and so will settle slightly above par. (Or below par, if there had been deflation.)
And what I was meaning by round numbers was selling basically at Par so I could buy amounts in thousands to more exactly match estimate monthly expenses, as opposed to reopened auctions and the secondary market where you have an inflation adjustment.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Fremdon Ferndock
Posts: 334
Joined: Fri Dec 24, 2021 12:26 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Fremdon Ferndock »

You might pay more or less than the face value of a TIP at auction:
When purchased on TreasuryDirect, the price of a TIPS can be less than, equal to, or greater than the face value you are purchasing.

The ‘coupon’ yield does not change, but the price you pay can be higher or lower than the amount of TIPS you are buying. This is from TreasuryDirect.gov:

The price of a fixed rate security depends on its yield to maturity and the interest rate. If the yield to maturity (YTM) is greater than the interest rate, the price will be less than par value; if the YTM is equal to the interest rate, the price will be equal to par; if the YTM is less than the interest rate, the price will be greater than par.

For example, in the April 2011 auction of a 5-year TIPS, you would have paid $5,087.95 for $5,000 of that issue, since that TIPS had a coupon rate of 0.125% but the auction rate was negative 0.18%.
https://tipswatch.com/why-tips/
Risk cannot be reduced -- it can only be changed from one form to another
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 3:20 pm
Svensk Anga wrote: Wed Jun 22, 2022 3:12 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm
Kevin M wrote: Wed Jun 22, 2022 2:16 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:07 pm My round number comment was referring to why I prefer original auctions to reopened auctions.
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
So you are saying TIPS are not sold at Face/Par value at the original auctions?
I think they are at par at the origination auctions, but by the settlement date they have accumulated some inflation adjustment and so will settle slightly above par. (Or below par, if there had been deflation.)
And what I was meaning by round numbers was selling basically at Par so I could buy amounts in thousands to more exactly match estimate monthly expenses, as opposed to reopened auctions and the secondary market where you have an inflation adjustment.
No, they are not sold at par (100 % of unadjusted face value), and there is an inflation adjustment, as I've already explained.

Last 5-year auction sold at 102.328775 unadjusted, IR = 1.00424, adjusted price = 102.762649. It will mature at 100, with the inflation adjustment whatever it is 5 years from settlement.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
FactualFran
Posts: 1820
Joined: Sat Feb 21, 2015 2:29 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by FactualFran »

TheTimeLord wrote: Wed Jun 22, 2022 3:20 pm And what I was meaning by round numbers was selling basically at Par so I could buy amounts in thousands to more exactly match estimate monthly expenses, as opposed to reopened auctions and the secondary market where you have an inflation adjustment.
The most recent original auction of TIPS that did not have an inflation adjustment to the price was for the 10-year TIPS auctioned July, 08, 2010. The standard practice seems to have become having the issue date not be the same as the dated date (the inflation adjustment and accrued interest start at the dated date).
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Kevin M wrote: Wed Jun 22, 2022 3:32 pm
TheTimeLord wrote: Wed Jun 22, 2022 3:20 pm
Svensk Anga wrote: Wed Jun 22, 2022 3:12 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm
Kevin M wrote: Wed Jun 22, 2022 2:16 pm
But those are not round numbers either (look at my example), and can be purchased on the secondary market the day of the auction (or day after) on secondary market with a lower IR, due to the extended settlement time for auctions. Favor: secondary (if you can get the same or better price).

Kevin
So you are saying TIPS are not sold at Face/Par value at the original auctions?
I think they are at par at the origination auctions, but by the settlement date they have accumulated some inflation adjustment and so will settle slightly above par. (Or below par, if there had been deflation.)
And what I was meaning by round numbers was selling basically at Par so I could buy amounts in thousands to more exactly match estimate monthly expenses, as opposed to reopened auctions and the secondary market where you have an inflation adjustment.
No, they are not sold at par (100 % of unadjusted face value), and there is an inflation adjustment, as I've already explained.

Last 5-year auction sold at 102.328775 unadjusted, IR = 1.00424, adjusted price = 102.762649. It will mature at 100, with the inflation adjustment whatever it is 5 years from settlement.

Kevin
Well I am learning. So why was the unadjusted price $102.328775 on an original auction?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Fremdon Ferndock
Posts: 334
Joined: Fri Dec 24, 2021 12:26 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Fremdon Ferndock »

Bid-ask YTM spread on the 4/15/22 5-Year at closing was 0.482 - 0.507. Not sure what that says about the auction, except that we can expect somewhere between 0.48 and 0.51?
Risk cannot be reduced -- it can only be changed from one form to another
FactualFran
Posts: 1820
Joined: Sat Feb 21, 2015 2:29 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by FactualFran »

TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm So you are saying TIPS are not sold at Face/Par value at the original auctions?
So far, no original auction of TIPS has had an auction price equal to the par value. The 10-Year TIPS auctioned July 18, 2013 had an adjusted price of 100.004056 per $100 par.

The original auction price of nominal Treasury securities has sometimes been equal to the par value, such as with the 3-Year Note auctioned December 07, 2021.
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

FactualFran wrote: Wed Jun 22, 2022 3:54 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm So you are saying TIPS are not sold at Face/Par value at the original auctions?
So far, no original auction of TIPS has had an auction price equal to the par value. The 10-Year TIPS auctioned July 18, 2013 had an adjusted price of 100.004056 per $100 par.

The original auction price of nominal Treasury securities has sometimes been equal to the par value, such as with the 3-Year Note auctioned December 07, 2021.
Thanks. Kevin M. has explained they add an inflation adjustment for the time between the auction and settlement, at least that is what I am understanding or misunderstanding.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 3:44 pm Well I am learning. So why was the unadjusted price $102.328775 on an original auction?
Because that was the highest price (lowest yield) offered by the competitive bidders, so everyone got that price. The flip side of the coin is that the yield was -0.340%. If the unadjusted price is > 100, real yield is negative.

For the upcoming auction, the unadjusted price is expected to be < 100, since the yield today was 0.44% near the close. Unadjusted price today was 98.523.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
User avatar
dual
Posts: 977
Joined: Mon Feb 26, 2007 7:02 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by dual »

Unadjusted price today was 98.523.
I want to estimate how much cash I should have in my account. What is your estimate of the price I will have to pay for 10 Bonds?
FactualFran
Posts: 1820
Joined: Sat Feb 21, 2015 2:29 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by FactualFran »

TheTimeLord wrote: Wed Jun 22, 2022 3:57 pm Thanks. Kevin M. has explained they add an inflation adjustment for the time between the auction and settlement, at least that is what I am understanding or misunderstanding.
As stated in the parenthetical part of a previous post: the inflation adjustment and accrued interest start at the dated date. It is the days between the dated date and issue date that matter, not the days between the auction date and settlement date (the issue date and settlement date should be the same).
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

Kevin M wrote: Wed Jun 22, 2022 3:59 pm
TheTimeLord wrote: Wed Jun 22, 2022 3:44 pm Well I am learning. So why was the unadjusted price $102.328775 on an original auction?
Because that was the highest price (lowest yield) offered by the competitive bidders, so everyone got that price. The flip side of the coin is that the yield was -0.340%. If the unadjusted price is > 100, real yield is negative.

For the upcoming auction, the unadjusted price is expected to be < 100, since the yield today was 0.44% near the close. Unadjusted price today was 98.523.

Kevin
That was my guess but at the rate I was going taught better to ask.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Topic Author
TheTimeLord
Posts: 10205
Joined: Fri Jul 26, 2013 2:05 pm

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by TheTimeLord »

FactualFran wrote: Wed Jun 22, 2022 4:15 pm
TheTimeLord wrote: Wed Jun 22, 2022 3:57 pm Thanks. Kevin M. has explained they add an inflation adjustment for the time between the auction and settlement, at least that is what I am understanding or misunderstanding.
As stated in the parenthetical part of a previous post: the inflation adjustment and accrued interest start at the dated date. It is the days between the dated date and issue date that matter, not the days between the auction date and settlement date (the issue date and settlement date should be the same).
I think I am finally getting it.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 3:44 pm
Kevin M wrote: Wed Jun 22, 2022 3:32 pm
TheTimeLord wrote: Wed Jun 22, 2022 3:20 pm
Svensk Anga wrote: Wed Jun 22, 2022 3:12 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm So you are saying TIPS are not sold at Face/Par value at the original auctions?
I think they are at par at the origination auctions, but by the settlement date they have accumulated some inflation adjustment and so will settle slightly above par. (Or below par, if there had been deflation.)
And what I was meaning by round numbers was selling basically at Par so I could buy amounts in thousands to more exactly match estimate monthly expenses, as opposed to reopened auctions and the secondary market where you have an inflation adjustment.
No, they are not sold at par (100 % of unadjusted face value), and there is an inflation adjustment, as I've already explained.

Last 5-year auction sold at 102.328775 unadjusted, IR = 1.00424, adjusted price = 102.762649. It will mature at 100, with the inflation adjustment whatever it is 5 years from settlement.

Kevin
Well I am learning. So why was the unadjusted price $102.328775 on an original auction?
Yes, 5-year auctioned on 4/21, which is what is being reopened for tomorrow's auction.
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

dual wrote: Wed Jun 22, 2022 4:07 pm
Unadjusted price today was 98.523.
I want to estimate how much cash I should have in my account. What is your estimate of the price I will have to pay for 10 Bonds?
Unadjusted price times index ratio = 1.02376 times 100 plus a little accrued interest

e.g., 98.5 * 1.02376 * 100 = 10,084.04.

EDIT. I calculate accrued interest for issue date 6/30 as $2.60 for 10. My accrued interest last week for 10 was $2.20.
If I make a calculation error, #Cruncher probably will let me know.
User avatar
Kevin M
Posts: 12638
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by Kevin M »

TheTimeLord wrote: Wed Jun 22, 2022 3:57 pm
FactualFran wrote: Wed Jun 22, 2022 3:54 pm
TheTimeLord wrote: Wed Jun 22, 2022 2:30 pm So you are saying TIPS are not sold at Face/Par value at the original auctions?
So far, no original auction of TIPS has had an auction price equal to the par value. The 10-Year TIPS auctioned July 18, 2013 had an adjusted price of 100.004056 per $100 par.

The original auction price of nominal Treasury securities has sometimes been equal to the par value, such as with the 3-Year Note auctioned December 07, 2021.
Thanks. Kevin M. has explained they add an inflation adjustment for the time between the auction and settlement, at least that is what I am understanding or misunderstanding.
A much bigger factor when yield is negative can be the unadjusted price being at a premium due to the negative yield. Once again, for the last 5-year auction, unadjusted price was 102.328775 and adjusted price was 102.762649, so the inflation adjustment didn't add that much relative to the 2.33 price premium due to negative yield.
If I make a calculation error, #Cruncher probably will let me know.
User avatar
#Cruncher
Posts: 3482
Joined: Fri May 14, 2010 2:33 am
Location: New York City
Contact:

Re: Thursday's (6/23) 5 yr Tips auction, who is participating?

Post by #Cruncher »

Kevin M wrote: Wed Jun 22, 2022 3:59 pmIf the unadjusted price is > 100, real yield is negative.
Not necessarily. It just means the yield is lower than the coupon. For instance the 1/8% 5-year Oct 2024 TIPS auctioned 10/19/2017 had an unadjusted price of 100.351378 yet had a positive yield of 0.054%.
dual wrote: Wed Jun 22, 2022 4:07 pm I want to estimate how much cash I should have in my account. What is your estimate of the price I will have to pay for 10 Bonds?
That depends on the yield determined by the auction. For example, as shown below [1] if it came in at 0.450%, you'd have to cough up $10,083 including $2.66 of [2] accrued interest.

Code: Select all

Row                   Col A         Col B   Formula in column B
  1              Face value        10,000
  2             Index ratio       1.02376  [3]
  3                  Issued     6/30/2022
  4                 Matures     4/15/2027
  5                  Coupon        0.125%
  6  Previous interest date     4/15/2022  =COUPPCD(B3,B4,2,1)
  7      Next interest date    10/15/2022  =COUPNCD(B3,B4,2,1)
  8  Days in partial period           183  =B7-B6
  9   Days after issue date           107  =B7-B3
 10     Number full periods             9  =COUPNUM(B3,B4,2,1)-1
 11                             Cost Incl
 12       Yield to maturity   Accrued Int

Code: Select all

 13                 0.150%      10,228.04  =B$1*B$2*(-PV(A13/2,B$10,B$5/2,1,0)+B$5/2)/(1+(A13/2)*(B$9/B$8))
 14                 0.200%      10,203.65   (copied down)
 15                 0.250%      10,179.33    v v v
 16                 0.300%      10,155.07
 17                 0.350%      10,130.88
 18                 0.400%      10,106.75
 19                 0.450%      10,082.68  <===
 20                 0.500%      10,058.68
 21                 0.550%      10,034.73
 22                 0.600%      10,010.86
 23                 0.650%       9,987.04
 24                 0.700%       9,963.29
 25                 0.750%       9,939.60
Edited 6/23/2022 7:35 AM to specify the accrued interest:
  1. Formulas use the Excel COUPPCD, COUPNCD, COUPNUM, and PV functions.
  2. Based on $0.26573 "Adjusted Accrued Interest" per $1,000 according to the offering announcement.
  3. 1.02376 index ratio on 6/30/2022 issue date is from bottom line of the offering announcement.
Edited 6/27/2022 11:45 AM to add following confirmation of formula to calculate total cost.
According to the auction results PDF the yield-to-maturity came in at 0.362%. Plugging that into cell A25 of the spreadsheet above produces, for $1M of face value, a total cost of $1,012,508.07 in cell B25. This is the same as the total cost, including unrounded accrued interest, computed using the "Adjusted Price" from the auction results as shown in cell B29 on the bottom row below:

Code: Select all

Row                    Col A          Col B   Formula in Column B
  1               Face value      1,000,000
  2              Index ratio        1.02376
  5                   Coupon         0.125%
  8   Days in partial period            183
  9    Days after issue date            107
 10      Number full periods              9
 12        Yield to maturity     Total Cost
 25                  0.362%    1,012,508.07  = B1 * B2 * (-PV(A25/2, B10, B5/2, 1, 0) + B5/2) / (1 + (A25/2) * (B9/B8))

 27  Adjusted price per $100    101.2242340  (from auction results)
 28  Adj accr int per $1,000      0.2657301  =1000*B2*(B5/2)*(1-B9/B8)
 29               Total cost   1,012,508.07  =B1*(B27/100+B28/1000)
Last edited by #Cruncher on Mon Jun 27, 2022 10:48 am, edited 4 times in total.
Post Reply