What is happening with the SEC Yield for TIPS funds?

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Topic Author
snowsurfer
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Joined: Wed Jul 27, 2022 9:31 am

What is happening with the SEC Yield for TIPS funds?

Post by snowsurfer »

Hello,

Anyone can help me understand what is happening with the SEC yield for the intermediate TIPS funds?

First, real yield is currently positive across the longer dated part of the curve
https://home.treasury.gov/resource-cent ... nth=202402
5 YR 7 YR 10 YR 20 YR 30 YR
1.86% 1.89% 1.92% 2.05% 2.13%

But when I look at the intermediate TIPS funds, they show negative SEC yield:
TIP: -0.43% https://www.morningstar.com/etfs/arcx/tip/quote
SCHP: -0.49% https://www.morningstar.com/etfs/arcx/schp/quote
LTPZ: -0.74% https://www.morningstar.com/etfs/arcx/ltpz/quote
TIPZ: -0.35% https://www.morningstar.com/etfs/arcx/tipz/quote

I don't think it's M* reporting issue because I see similar numbers when I check company websites.

What am I missing?
Thank you.


[Title typo fixed by moderator Kendall.]
RyeBourbon
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by RyeBourbon »

I think you are comparing two different things: real yield for treasuries and SEC yield for TIPS.

I'm not sure you can find "SEC yield" for treasuries.
Topic Author
snowsurfer
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
toddthebod
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by toddthebod »

snowsurfer wrote: Sat Feb 10, 2024 7:09 pm Hello,

Anyone can help me understand what is happening with the SEC yield for the intermediate TIPS funds?

First, real yield is currently positive across the longer dated part of the curve
https://home.treasury.gov/resource-cent ... nth=202402
5 YR 7 YR 10 YR 20 YR 30 YR
1.86% 1.89% 1.92% 2.05% 2.13%

But when I look at the intermediate TIPS funds, they show negative SEC yield:
TIP: -0.43% https://www.morningstar.com/etfs/arcx/tip/quote
SCHP: -0.49% https://www.morningstar.com/etfs/arcx/schp/quote
LTPZ: -0.74% https://www.morningstar.com/etfs/arcx/ltpz/quote
TIPZ: -0.35% https://www.morningstar.com/etfs/arcx/tipz/quote

I don't think it's M* reporting issue because I see similar numbers when I check company websites.

What am I missing?
Thank you.
The inflation adjustments on TIPS have been negative due to brief deflation late 2023.
Backtests without cash flows are meaningless. Returns without dividends are lies.
toddthebod
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by toddthebod »

snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
Non-seasonally adjusted CPI-U has decreased every month since September.

Image
Backtests without cash flows are meaningless. Returns without dividends are lies.
Topic Author
snowsurfer
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

toddthebod wrote: Sat Feb 10, 2024 9:18 pm
snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
CPI-U decreased from November to December.
Hmm, this might be it. Thank you
rossington
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by rossington »

snowsurfer wrote: Sat Feb 10, 2024 9:21 pm
toddthebod wrote: Sat Feb 10, 2024 9:18 pm
snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
CPI-U decreased from November to December.
Hmm, this might be it. Thank you
Hello OP,
I would be wary about TIPS for this reason:
The federal government determines the inflation indexes.
They determine the TIPS return.
Does their determination of inflation actually match your experienced and expected personal inflation?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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grabiner
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by grabiner »

Note that Vanguard reports real yields on its TIPS funds, which are more meaningful; this is the yield to maturity above inflation for all the TIPS in the fund.
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Topic Author
snowsurfer
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

rossington wrote: Sun Feb 11, 2024 5:08 am
snowsurfer wrote: Sat Feb 10, 2024 9:21 pm
toddthebod wrote: Sat Feb 10, 2024 9:18 pm
snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
CPI-U decreased from November to December.
Hmm, this might be it. Thank you
Hello OP,
I would be wary about TIPS for this reason:
The federal government determines the inflation indexes.
They determine the TIPS return.
Does their determination of inflation actually match your experienced and expected personal inflation?
I agree that it's not a perfect, but there is no instrument that matches my experience of inflation exactly (not possible), so I have to do with what I have. Also buy stocks, real estate, gold, etc. The whole "return of the portfolio, not an individual asset" thing.
bberris
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by bberris »

rossington wrote: Sun Feb 11, 2024 5:08 am
snowsurfer wrote: Sat Feb 10, 2024 9:21 pm
toddthebod wrote: Sat Feb 10, 2024 9:18 pm
snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
CPI-U decreased from November to December.
Hmm, this might be it. Thank you
Hello OP,
I would be wary about TIPS for this reason:
The federal government determines the inflation indexes.
They determine the TIPS return.
Does their determination of inflation actually match your experienced and expected personal inflation?
There is no possible measure of inflation that will match your own idiosyncratic set of expenses, decisions, desires, and purchases. I don't believe there is a conspiracy to dial down an inflation stat for the purpose of minimizing the government's interest expense. If it wanted to, it could just force down interest rates in general, and not worry about the inflation indexed bonds that form a small part of the debt.
Topic Author
snowsurfer
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

grabiner wrote: Sun Feb 11, 2024 10:59 am Note that Vanguard reports real yields on its TIPS funds, which are more meaningful; this is the yield to maturity above inflation for all the TIPS in the fund.
OK, if see the difference. If I check Vanguard's VIPSX (intermediate fund)
https://investor.vanguard.com/investmen ... omposition
it shows duration 6.5 years (comparable to SCHP and TIP) and SEC yield of 2.01% (and average coupon of 1.1%).

I wish TIPS funds were more clear about it. Otherwise it's apples to oranges.
drk
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by drk »

snowsurfer wrote: Sun Feb 11, 2024 12:22 pm OK, if see the difference. If I check Vanguard's VIPSX (intermediate fund)
https://investor.vanguard.com/investmen ... omposition
it shows duration 6.5 years (comparable to SCHP and TIP) and SEC yield of 2.01% (and average coupon of 1.1%).

I wish TIPS funds were more clear about it. Otherwise it's apples to oranges.
#Cruncher provides a weekly update of real yields for TIPS funds in Consistent Yield & Duration to Help Choose TIPS Fund. At Friday's close, SCHP's real yield was 2.02%.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
BlackcatCA
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by BlackcatCA »

Thank you Op for posting this question! I am just reading about TIPS fund since I just bought into a “inflation protection” option for the first time in my 401k plan (at Vanguard). The position is sitting at negative and I am wondering if I made a mistake and should have bought BND instead.
What you have quoted: does it mean that if I hold this fund for 6.5 years, I would get 2% real return?
snowsurfer wrote: Sun Feb 11, 2024 12:22 pm
grabiner wrote: Sun Feb 11, 2024 10:59 am Note that Vanguard reports real yields on its TIPS funds, which are more meaningful; this is the yield to maturity above inflation for all the TIPS in the fund.
OK, if see the difference. If I check Vanguard's VIPSX (intermediate fund)
https://investor.vanguard.com/investmen ... omposition
it shows duration 6.5 years (comparable to SCHP and TIP) and SEC yield of 2.01% (and average coupon of 1.1%).

I wish TIPS funds were more clear about it. Otherwise it's apples to oranges.
Topic Author
snowsurfer
Posts: 7
Joined: Wed Jul 27, 2022 9:31 am

Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

drk wrote: Sun Feb 11, 2024 12:26 pm
snowsurfer wrote: Sun Feb 11, 2024 12:22 pm OK, if see the difference. If I check Vanguard's VIPSX (intermediate fund)
https://investor.vanguard.com/investmen ... omposition
it shows duration 6.5 years (comparable to SCHP and TIP) and SEC yield of 2.01% (and average coupon of 1.1%).

I wish TIPS funds were more clear about it. Otherwise it's apples to oranges.
#Cruncher provides a weekly update of real yields for TIPS funds in Consistent Yield & Duration to Help Choose TIPS Fund. At Friday's close, SCHP's real yield was 2.02%.
Great link, thank you
Topic Author
snowsurfer
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by snowsurfer »

BlackcatCA wrote: Sun Feb 11, 2024 12:34 pm Thank you Op for posting this question! I am just reading about TIPS fund since I just bought into a “inflation protection” option for the first time in my 401k plan (at Vanguard). The position is sitting at negative and I am wondering if I made a mistake and should have bought BND instead.
What you have quoted: does it mean that if I hold this fund for 6.5 years, I would get 2% real return?
snowsurfer wrote: Sun Feb 11, 2024 12:22 pm
grabiner wrote: Sun Feb 11, 2024 10:59 am Note that Vanguard reports real yields on its TIPS funds, which are more meaningful; this is the yield to maturity above inflation for all the TIPS in the fund.
OK, if see the difference. If I check Vanguard's VIPSX (intermediate fund)
https://investor.vanguard.com/investmen ... omposition
it shows duration 6.5 years (comparable to SCHP and TIP) and SEC yield of 2.01% (and average coupon of 1.1%).

I wish TIPS funds were more clear about it. Otherwise it's apples to oranges.
If things/rates don't change much, yes. If rates go up, I believe you might need to hold it up to about twice the fund duration to get that two percent over the holding period. Similar situation with nominal bond funds. Value of the bonds drop due to the interest rate rise, but you make it up on the higher resulting yield.

Of course, if the rates drop, then you are making out like a bandit :D
aristotelian
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Re: What is happening with the SEC Yiled for TIPS funds?

Post by aristotelian »

rossington wrote: Sun Feb 11, 2024 5:08 am
snowsurfer wrote: Sat Feb 10, 2024 9:21 pm
toddthebod wrote: Sat Feb 10, 2024 9:18 pm
snowsurfer wrote: Sat Feb 10, 2024 8:34 pm TIPS bond funds hold TIPS - fund yield is a cumulative yield of the TIPS they hold and SEC yield is an estimate of that. If underlying TIPS have real yield of almost 2%, I would expect that SEC yield for the funds would be showing something similar. Instead it shows a negative number and I'm definitely puzzled by that. Since we still have inflation, I cannot think of any way to explain that negative number.
CPI-U decreased from November to December.
Hmm, this might be it. Thank you
Hello OP,
I would be wary about TIPS for this reason:
The federal government determines the inflation indexes.
They determine the TIPS return.
Does their determination of inflation actually match your experienced and expected personal inflation?
The idea is that TIPS protect you better from inflation than nominal bonds. They do not have to work perfectly to be better than nominal bonds when inflation is higher than expected.
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