Consistent Yield & Duration to Help Choose TIPS Fund

[#Cruncher]

Vanguard's recent introduction of a short term TIPS index fund may have caused some of us to consider what is the best maturity TIPS fund to invest in at this time. The three main statistics to help in making this decision are, in my opinion, average Real Yield-to-Maturity (YTM), average Real Duration, and Expense Ratio. Unfortunately TIPS funds don't always calculate the first two or do so inconsistently. To provide consistent figures I've done so myself for four categories of funds using figures from Barclays. (1)

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                            Real
  #       Real            Modified
TIPS      YTM      Life   Duration     Index
-----    ------    ----   --------  ------------
  14     (1.28)    2.73      2.70    0 - 5 Years
  12     (1.33)    3.02      2.97    1 - 5 Years
  33     (0.79)    9.80      8.76    1+ Years
   8      0.06    20.55     17.10   15+ Years

Here are the TIPS ETFs I'm aware of that fit into these four maturity categories. Since they are index funds all of the ones in the same category will have pretty much the same average real YTM and duration as shown in the table above.
0 - 5 Years: iShares STIP, Vanguard VTIP (2)
1 - 5 Years: PIMCO STPZ
1+ Years: SPDR IPE, Schwab SCHP, iShares TIP, PIMCO TIPZ
15+ Years: PIMCO LTPZ

You can get more information about these ETFs, like size and expense ratios, at ETFdb Inflation-Protected Bonds ETFs. While neither an index fund nor an ETF, the longstanding Vanguard TIPS Fund (VIPSX) has holdings that have pretty closely matched the 1+ Year index in the past.

1) Market-weighted average yIeld, life, and duration for 1-5, 1+, and 15+ indexes from Barclays Indices (Click Inflation-Linked, then US Govt, then Constituents to download Excel spreadsheet). To compute the 0-5 index I manually calculated the yield and duration for the two issues maturing in less than one year based on prices from WSJ TIPS Quotes 10/26/2012.
2) Unlike the others, the Vanguard VTIP ETF is also available as a standard mutual fund: VTIPX (Investor) and VTAPX (Admiral).

[grok87]

Vanguard's recent introduction of a short term TIPS index fund may have caused some of us to consider what is the best maturity TIPS fund to invest in at this time. The three main statistics to help in making this decision are, in my opinion, average Real Yield-to-Maturity (YTM), average Real Duration, and Expense Ratio. Unfortunately TIPS funds don't always calculate the first two or do so inconsistently. To provide consistent figures I've done so myself for four categories of funds using figures from Barclays. (1)

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                            Real
  #       Real            Modified
TIPS      YTM      Life   Duration     Index
-----    ------    ----   --------  ------------
  14     (1.28)    2.73      2.70    0 - 5 Years
  12     (1.33)    3.02      2.97    1 - 5 Years
   8      0.06    20.55     17.10   15+ Years
  33     (0.79)    9.80      8.76    1+ Years

Here are the TIPS ETFs I'm aware of that fit into these four maturity categories. Since they are index funds all of the ones in the same category will have pretty much the same average real YTM and duration as shown in the table above.
0 - 5 Years: iShares STIP, Vanguard VTIP (2)
1 - 5 Years: PIMCO STPZ
15+ Years: PIMCO LTPZ
1+ Years: SPDR IPE, Schwab SCHP, iShares TIP, PIMCO TIPZ

You can get more information about these ETFs, like size and expense ratios, at ETFdb Inflation-Protected Bonds ETFs. While neither an index fund nor an ETF, the longstanding Vanguard TIPS Fund (VIPSX) has holdings that have pretty closely matched the 1+ Year index in the past.

1) Market-weighted average yIeld, life, and duration for 1-5, 15+, and 1+ indexes from Barclays Indices (Click Inflation-Linked, then US Govt, then Constituents to download Excel spreadsheet). To compute the 0-5 index I manually calculated the yield and duration for the two issues maturing in less than one year based on prices from WSJ TIPS Quotes 3/26/2012.
2) Unlike the others, the Vanguard VTIP ETF is also available as a standard mutual fund: VTIPX (Investor) and VTAPX (Admiral).

Nice post #cruncher,

Two suggestions for additional columns in your table:

1) Loss during 2nd half of 2008:
Barclays doesn't have the 15+ year index easily to hand, but here are the figures for the other indices:

all tips index: -6.9%
0-5 year tips: -6.9%
1-5 year tips: -7.5%

2) what the funds price might lose if real interest rates rise 300 bps:
I'm sure you can program this yourself in excel using the price function. I took a stab at it for the 15+ year tips index using the figures you gave (avg maturity, real yield) and came up with -45.5%, which is not quite as bad as the -51% suggested by duration approximation (due to positive convexity).

thanks again for the nice table
cheers,

[#Cruncher]

2) what the funds price might lose if real interest rates rise 300 bps: I'm sure you can program this yourself in excel using the price function.

Here are the declines given a 1%, 2%, or 3% point increase in real yields across the board for all issues. (Be aware that when the economy picks up and real interest rates rise, short term rates may rise more than long term rates.)

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    1%        2%        3%         Index
  ------    ------    ------   ------------
   -2.7%     -5.2%     -7.7%    0 - 5 Years
   -2.9%     -5.7%     -8.5%    1 - 5 Years
   -8.2%    -15.3%    -21.6%    1+ Years
  -15.9%    -28.0%    -38.3%   15+ Years

I couldn't use the Excel PRICE() function for the 1% point increase. For some issues the resulting yield is still negative; and the function chokes when asked to use a negative yield. For the 1% case I used the underlying present value formulas.

By the way, a simpler method that gives a good approximation is to treat the index average as if it were a zero-coupon bond having a maturity equal to the average duration. This method produces an estimate of a 39.7% decline for the 15+ index were interest rates to rise 3% points. This is still overstated, but it is closer than using the rule of thumb that price decline equals duration X % point change: 17.10 X 3 = 51.3% decline.

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-39.7% = 59.73 / 98.98 - 1 = (100 / 1.0306 ^ 17.10) / (100 / 1.0006 ^ 17.10) - 1

[SimpleGift]

Very helpful analysis, #Cruncher.

Those of us with mediocre skills in math and statistics appreciate your contributions to the Forum!

[Doc]

#Cruncher, can you give us your view of "real duration" and "effective duration".

Here's my problem. You have the real YTM and duration for the 1-5 indexed STPZ as
.... (1.33) and 3.02.
but Pimco has the effective 30 day SEC yield and duration as
... 3.96 and 2.20
(They also show "estimated" YTM as a positive 0.55% )

I think the major difference between the two is the difference between "real" and "nominal" but am not sure and I have no idea why the "estimated" and SEC yields are so different.

In other posts I believe you have said that it is only the "real" duration that matters. I can accept this if you are trying to compare TIPS or TIPS funds with each other. But if you want to compare TIPS with nominals you need the nominal duration. I realize that to calculate the nominal's you need to make some assumptions about future inflation (using the breakeven maybe). You also have a more involved calculation because the coupons are no longer constant. I also seem to recall that different entities calculate the nominal numbers in different ways.

Would you please comment.

FWIW I have resorted to just plugging in the maturities for TIPS in calculating my portfolio duration while still using duration for nominals. I also just use weighted averages of the duration/maturity as an approximation. Your comments on that approach would also be appreciated.

[#Cruncher]

#Cruncher, can you give us your view of "real duration" and "effective duration".

"Real" and "effective" refer to two different dimensions. Real duration can be either "modified" or "effective" and likewise "nominal" can be either "modified" or "effective".

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  Real    Nominal
  ---     -------
   ME        x      Modified
   x       PIMCO    Effective

Effective duration differs from modified only when the bond has an option like a call option. Investopedia definition of effective duration:

A duration calculation for bonds with embedded options. Effective duration takes into account that expected cash flows will fluctuate as interest rates change.

Since TIPS have no embedded options, effective duration is the same as modified duration.

So actually both my figure and PIMCO's are modified duration or the indicator of change in price due to a 1% point change in interest rates. They differ in that mine shows the price change per 1% point change in real interest rates. Unfortunately PIMCO gives no definition on its web page. But I assume it is meant to show the price change per 1% point change in nominal interest rates. For example, if the yield on nominal treasuries of comparable maturity rose 1% point PIMCO estimates that the price of its TIPS fund would fall 2.20%.

In my view "nominal duration" is a useless concept when applied to TIPS. It assumes a fairly constant relationship between nominal and real interest rates. Something like: If nominal interest rates rise 1% point, then real interest rates will rise 0.7%. But there is no such stable relationship. In fact it's quite possible for them to move in opposite directions. This happened about six weeks ago when 10-year nominal Treasury rates jumped 0.2% points or so in a week. But at the same time the real rates on 10-year TIPS actually fell. Thus the price of TIPS rose at the same time that those of nominal Treasuries fell. No positive value of duration could express this relation. (See my post, Re: TIPS fund duration question.)

Regarding PIMCO's "Estimated yield to maturity" of 0.55% and SEC yield of 3.96%: Again PIMCO gives no explanation of either on its web page. But my guess is they reflect CPI change over two different time periods. The YTM seems to reflect an inflation rate of about 1.9%. (0.55% = 1.9% - 1.33%). (1) This is about what the annual change in the CPI has been running the past couple of months. (See 1 Yr change column in CPI-U since 1961 with annual change for September.)

The SEC yield seems to reflect an inflation rate of about 5.5% (4.16% = 5.5% - 1.33%). (1) (2) It looks like PIMCO is annualizing the latest monthly change in the CPI used for adjusting TIPS' principal (September vs August before seasonal adjustment). 5.5% = (231.407 / 230.379) ^ 12 - 1. If indeed that's what PIMCO is doing, it's improper in my opinion to be extrapolating a one-month change -- especially one that's not seasonally adjusted -- into an annual rate.

1) Negative 1.33% is the real yield I show for the 1 - 5 year index -- see original post.
2) 4.16% is the 3.96% SEC Yield plus the fund's 0.20% expense ratio.

[Doc]

#Cruncher, thanks for clarifying the issues. There is a lot of sketchy info on Pimco's website which doesn't lead to much clarification of the real/nominal duration question. Given that:

In my view "nominal duration" is a useless concept when applied to TIPS. It assumes a fairly constant relationship between nominal and real interest rates. Something like: If nominal interest rates rise 1% point, then real interest rates will rise 0.7%. But there is no such stable relationship. In fact it's quite possible for them to move in opposite directions. This happened about six weeks ago when 10-year nominal Treasury rates jumped 0.2% points or so in a week. But at the same time the real rates on 10-year TIPS actually fell. Thus the price of TIPS rose at the same time that those of nominal Treasuries fell. No positive value of duration could express this relation.

To paraphrase this comment: The assumptions needed to calculate a nominal duration are so iffy that the resultant metric is virtually useless. So we will resort to a real duration calculation that avoids the poor assumptions and gives us an accurate metric.

Unfortunately the real duration metric doesn't apply to nominals so it too is not helpful in trying to compare nominals with inflation protected instruments.

Can we get a better estimate of a nominal duration by just comparing a TIPS with the same maturity nominal with a low coupon rate?

For example: VIPSX has an average maturity of 9.4 yrs and an average duration of 8.5 years which is in line with your 1+ numbers of 9.8 and 8.76. I find two nominal bonds maturing 2/15/2021 with a high and low coupon and yields of 1.34/1.41 with durations of 6.56 and 7.24 years. I would take the low coupon number and say the nominal duration of VIPSX is ~ 7.2 yrs. All the inflation assumptions that you "object" to are baked into the data by Mr. Market. Do you think this approach is useful? How would you improve the approach? Maybe you would still reject the number for the same reasons that the assumptions on inflation are still there even if now they are baked into the data by the market.

I have spent several hours over the past few days trying to figure this all out and I have another question. Why do we want to know the duration of a TIPS fund anyway?

[SimpleGift]

Why do we want to know the duration of a TIPS fund anyway?

Personally, I like to know the magnitude of the fluctuations to expect from the "safe" bond portion of my portfolio, and I'd ideally like to use a single measure of interest rate risk that encompasses both nominal bonds and TIPS. However, as pointed out by #Cruncher above, there may be too much uncertainty in calculating a nominal duration for a TIPS fund.

Here's how PIMCO describes the method used by BofA Merrill Lynch to calculate the nominal duration of their TIPS indexes (from a footnote in this post): "BofA Merrill Lynch calculates nominal duration by multiplying real duration by a rolling 3-month correlation of real and nominal yields."

My question: Is this rolling 3-month correlation between real and nominal rates so unstable as to make their calculation of a nominal duration for a TIPS fund unreliable?

[Doc]

Why do we want to know the duration of a TIPS fund anyway?

Personally, I like to know the magnitude of the fluctuations to expect from the "safe" bond portion of my portfolio, and ideally I'd like to use a measure of interest rate risk that encompasses both nominal bonds and TIPS. However, as pointed out by #Cruncher above, there may be too much uncertainty in calculating a nominal duration for a TIPS fund.

Here's how PIMCO describes the method used by BofA Merrill Lynch to calculate the nominal duration of their TIPS indexes (from a footnote in this post): "BofA Merrill Lynch calculates nominal duration by multiplying real duration by a rolling 3-month correlation of real and nominal yields."

My question: Is this rolling 3-month correlation between real and nominal rates so unstable as to make their calculation of a nominal duration for a TIPS fund unreliable?

I assume that by "magnitude of fluctuations" you are referring to price/yield relationship. That is easy. TIPS and nominal bonds are expected to behave in a similar manner under efficient market conditions. A TIPS fund will behave pretty much like a nominal fund with the same maturity unless inflation is not what is expected. But we have no way of calculating the unexpected by the very definition of unexpected. So if we have a higher than "normal" aversion to inflation we pick the TIPS and vice versa.

#Cruncher's analysis is very useful in calculating an accurate metric for TIPS funds. This is especially helpful because the fund companies don't seem to have a consistent method. The bold reference in your post a good example. I have no idea what that cryptic quote is and Pimco's website was of no help.

But I myself don't need that metric to decide among the various TIPS funds. I will chose a short/medium/long fund based on my personal time frame. I will choose among various funds within a category based on trading aspects - volume, spreads etc. The duration difference between a 0-5 and a 1-5 is pretty meaningless. One is going to have a very slightly lower response to interest rate changes. The difference is return is likewise questionable. One has lower trading costs because they don't have to sell the one year note and the other has potential higher returns by "riding the yield curve" because they do sell the one year note. The difference is probably on the order of low 2 digits of Starbucks.

I want to know the nominal duration of TIPS because I have to slice and dice my bond portfolio because of space limitations between taxable and tax advantaged accounts. I want the total portfolio to stay close to the Bar Cap Intermediate (1-10) Government/Credit Index. But I probably don't even need to have a very accurate duration number to answer that question either. Simply using the average maturity is probably more accurate than the range of numbers the fund companies calculate for similar portfolios.

SEC 30 day duration anyone?

[SimpleGift]

My question: Is this rolling 3-month correlation between real and nominal rates so unstable as to make their calculation of a nominal duration for a TIPS fund unreliable?

Out of curiosity, I ran rolling, 3-month correlations between the weekly yield of the 10-year Treasury and the 10-year TIPS over the 2003 to 2012 period (from Federal Reserve interest rate data found here). #Cruncher will probably cringe at this amateur analysis, but it looks like there isn't a very stable correlation between nominal and real rates (chart below). Perhaps daily interest rate data would show something different.

The average correlation over the 2003-2012 period was 0.73 — but it's still questionable whether calculating a nominal duration for a TIPS fund based on this metric makes any sense. Cheers.



PS. If one was to use this method, the nominal duration of Vanguard's intermediate-term TIPS Fund (VIPSX) would average about 6.4 years (8.7 years real duration x 0.73 = 6.4 years nominal).

[#Cruncher]

"BofA Merrill Lynch calculates nominal duration by multiplying real duration by a rolling 3-month correlation of real and nominal yields."

Thanks for mentioning this. I'd read the footnote when posting to the other thread; but had forgotten it.

A TIPS fund will behave pretty much like a nominal fund with the same maturity unless inflation is not what is expected.

I agree. If inflation expectations stay the same, this means the break-even inflation rate is unchanged, which means the difference between TIPS yields and nominal yields stays approximately the same, which in turn means that TIPS and nominal rates are going up or down by the same amount. Therefore the real duration for TIPS and the duration for nominals will give comparable results. For example, if a TIPS bond or fund has a real duration twice that of a nominal Treasury bond or fund, we can expect its price to move about twice as much for the (assumed) equal movement in TIPS and nominal rates.

I ran rolling, 3-month correlations between the weekly published yield of the 10-year Treasury and the 10-year TIPS over the 2003 to 2012 period...

Thanks for preparing the graph, Simplegift. I don't consider it amateurish at all. (I'm really the amateur when it comes to statistics. I can "crunch" numbers well enough, but I'm pretty weak on theory.) Your chart shows more correlation than I would have guessed. But I still don't think it's enough to warrant using nominal duration to predict changes in TIPS prices.

By the way, I've added a "Weight" sheet to my Yield to Maturity and Duration Calculator Excel workbook, to calculate the weighted average yield, life, and duration. It's fairly easy to update for current prices using instructions on the Notes page:

1. Copy and paste current prices from WSJ TIPS Quotes.
2. Enter the settlement date on the "Bonds" sheet.
3. Run the macro to compute yield and duration.
4. Enter the Ref CPI for the settlement date on the "Weight" sheet from Ref CPI for 2012.

The weighted results appear at the bottom of the Weight sheet. The figures are pretty close to the ones in my original post in this thread except for the life and duration for the 1+ and 15+ funds. The reason is that Barclays has not yet included the last auction of the Feb 2042's, thereby giving them a lighter weight than I show in the Excel file. For example, using Barclays weights provides a duration of 8.76 for the 1+ index and 17.10 for the 15+ index; while my spreadsheet, which does include the latest auction, shows them as 8.92 and 17.41 respectively.

Edit: The Weight sheet can easily be modified to calculate the weighted average yield, life, and duration for one's own portfolio of individual TIPS. Just enter the face value of each issue one holds in the Face Value column and blank out all the others. Read the averages from the 0+ row which covers all maturities.

[Doc]

Out of curiosity, I ran rolling, 3-month correlations between the weekly published yield of the 10-year Treasury and the 10-year TIPS over the 2003 to 2012 period (from Federal Reserve interest rate data found

I didn't think this through but if you are going to use only 3 months should you take into account the TIPS lag of the CPI by is it 2 1/2 months. It would be interesting if this smooths the data although it might not have nay effect at all on the mean.

FWIW your 6.4 years is in the range that I got by using the nominal bond comparison. Probably shear coincidence or just all within the margin of error.

[#Cruncher]

I"ve updated the figures with this Friday's prices. I'm using my own Excel workbook, Yield to Maturity and Duration Calculator, with WSJ Prices 11/2/2012 instead of Barclays'. It's much easier to update and gives pretty much the same results.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
----     ------    ----   --------   -----   -----   -----   ------------
  14    (1.29%)    2.71     2.67%     2.6%    5.1%    7.6%    0 - 5 Years
  12    (1.35%)    3.00     2.96%     2.9%    5.7%    8.4%    1 - 5 Years
  33    (0.82%)    9.97     8.92%     8.3%   15.5%   21.8%    1+ Years
   8     0.03%    20.83    17.41%    15.7%   28.4%   38.8%   15+ Years

Here is a weekly listing of just the yields. (The life, duration, and sensitivity don't change much from week to week.)

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   0-5         1-5         1+         15+
--------    --------    --------    ------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.29%)     (1.35%)     (0.82%)      0.03%   11/02/2012
(1.23%)     (1.33%)     (0.87%)     (0.08%)  11/09/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012

Edit 11/09/12: added 11/9/2012 yields. Short term higher while long term lower. 15+ average turns negative (first time for this I believe). Only 3 TIPS: 2040, 2041, & 2042 now have positive real yields. 0-5 now only 0.36% points lower than 1+.

Edit 11/17/12: added 11/16/12 yields. Little change from last week. 0-5 remains 0.36% lower than 1+.

[Van]

So, what does all of the foregoing mean for a doofus like me?

Does it boil down to stay short-term if your time horizon is short and so on?

[#Cruncher]

So, what does all of the foregoing mean...? Does it boil down to stay short-term if your time horizon is short and so on?

Van, at the current time, I'd choose Vanguard's short term TIPS fund (VTIPX) over its broad TIPS fund (VIPSX) whether my horizon was long or short. As shown in my previous post, at 11/16/12 prices you only make 0.36% more in real yield with the longer term fund. In my opinion this isn't enough to compensate for the increased interest rate risk. I only hold individual TIPS; but I've been shortening my average duration. It's now down to about 6.7%. My last exchange was to sell the April 2028's and buy some of the April 2017's at the last auction.

I just noticed that Vanguard is starting to fill in the web pages for its new short term fund. However, some of the figures look screwy.

• SEC Yield -1.89% as of 11/16/12: this should be something around -1.41% given the 0-5 index yield of -1.21% (see 11/17/12 edit to my previous post) and the 0.20% expense ratio. (On the other hand, the -1.01% SEC yield reported by the broad TIPS fund (VIPSX) is about what one would expect given the -0.85% YTM of the 1+ index and the fund's 0.20% ER.)
• 1.1 years average duration: this should be about 2.7. While the footnote says it is based on changes in real interest rates, I suspect Vanguard is actually showing an estimate of the sensitivity to changes in nominal interest rates -- a fruitless quest in my opinion.

Total Net Assets as of 10/31/2012 are up to $42.7 million including:

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   0.4 million  Investor shares (VTIPX) with 0.20% ER
  10.9 million  Admiral  shares (VTAPX) with 0.10% ER
  25.0 million  ETF             (VTIP)  with 0.10% ER

As of 11/16/12 the ETF market price was $49.98, about 0.16% more than the NAV of $49.90.

[#Cruncher]

I"ve updated the figures with 12/21/2012 prices and for the weighting effects of the auctions in November and December. I'm using my Excel workbook, Yield to Maturity and Duration Calculator, with WSJ Prices 12/21/2012.

The 0-5 year short term index now yields -1.29% or 0.42% points less than the -0.87% yield of the 1+ years broad index. This lower yield is compensated by a lower duration. Were TIPS yields to instantly rise 1% point for all maturities, it would fall only 2.6%; while the broad index would fall 8.2%.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  14   (-1.29%)    2.65     2.61%     2.6%    5.0%    7.4%    0 - 5 Years
  12   (-1.43%)    2.94     2.90%     2.8%    5.6%    8.2%    1 - 5 Years
  33   (-0.87%)    9.77     8.75%     8.2%   15.2%   21.5%    1+ Years
   8   (-0.01%)   20.74    17.34%    15.6%   28.3%   38.6%   15+ Years

Total Net Assets of the new Vanguard short term (0 - 5 years) TIPS fund as of 11/30/2012 are up to $89.4 million including:

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   1.1 million  Investor shares (VTIPX) with 0.20% ER
  26.8 million  Admiral  shares (VTAPX) with 0.10% ER
  55.2 million  ETF             (VTIP)  with 0.10% ER

As of 12/21/12 the ETF market price was $50.07, 0.14% more than the NAV of $50.00.

Edit 1/4/2013: Update yields thru today, using WSJ Prices 01/04/2013.

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   0-5         1-5         1+         15+
--------    --------    --------    ------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.29%)     (1.35%)     (0.82%)      0.03%   11/02/2012
(1.23%)     (1.33%)     (0.87%)     (0.08%)  11/09/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013

The yield curve has steepened this week; short rates have fallen while long rates have risen. You now get a 0.58% point higher real yield-to-maturity with the longer term 1+ funds (negative 0.78%) than the short-term 0-5 funds (negative 1.36%).

[#Cruncher]

I"ve updated the figures with 02/08/2013 prices and for the weighting effects of the auction in January. I'm using my Excel workbook, Yield to Maturity and Duration Calculator, with WSJ Prices 02/08/2013.

The 0-5 year short term index now yields -2.01% or 1.07% points less than the -0.94% yield of the 1+ years broad index. The differential increased significantly over the past month. This means one now has to accept a much lower yield as the price for reduced sensitivity to interest rate increases.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (2.01%)    2.65     2.62%    2.57%   5.05%   7.43%    0 - 5 Years
  12    (1.85%)    3.11     3.08%    3.02%   5.91%   8.70%    1 - 5 Years
  33    (0.94%)    9.76     8.76%    8.17%  15.29%  21.55%    1+ Years
   7     0.21%    21.15    17.47%   15.71%  28.42%  38.75%   15+ Years

Here is a table showing the trend of yields since last October:

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   0-5         1-5         1+         15+
--------    --------    --------    ------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.29%)     (1.35%)     (0.82%)      0.03%   11/02/2012
(1.23%)     (1.33%)     (0.87%)     (0.08%)  11/09/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.01%)     (1.85%)     (0.94%)      0.21%   02/08/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013

Edit 2/16/2013: Update yields thru Feb 15th, using WSJ Prices 02/15/2013. The 0-5 year short term index now yields -2.14% or 1.22% points less than the -0.92% yield of the 1+ years broad index. And as of 01/31/2013 the Fund total net assets have increased to $256.0 million from $153.7 million a month before.

Total Net Assets of the new Vanguard short term (0 - 5 years) TIPS fund as of 12/31/2012 are up to $153.7 million including:

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    2.2 million  Investor shares (VTIPX) with 0.20% ER
   36.9 million  Admiral  shares (VTAPX) with 0.10% ER
  108.3 million  ETF             (VTIP)  with 0.10% ER

As of 02/08/2013 the ETF market price was $50.20, 0.08% more than the NAV of $50.16.

By the way, some of the SEC yields reported when using the Search for more historical price information link on the Price & Performance tab appear out of whack.

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   Date       Price    Yield G,E
----------   ------    ---------
02/07/2013   $25.17     –1.50%
02/08/2013   $25.17     –2.32%

The -2.32% reported for Feb 8th seems reasonable, but not the -1.50% reported for the previous day.

[#Cruncher]

I"ve updated my Yield to Maturity and Duration Calculator with WSJ TIPS Prices 04/26/2013 and the weighting effects of the auctions in February, March, and April (see bottom 3 rows in TIPS Auctions List). As shown in the table below the 0-5 year short term index now yields -1.47% or 0.54% points less than the -0.93% yield of the 1+ years broad index. The differential shrunk significantly over the last two months. One can now reduce sensitivity to interest rate increases and suffer only a moderately lower yield.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.47%)    2.67     2.64%    2.59%   5.09%   7.49%    0 - 5 Years
  12    (1.59%)    3.13     3.10%    3.04%   5.95%   8.76%    1 - 5 Years
  34    (0.93%)    9.92     8.95%    8.33%  15.57%  21.91%    1+ Years
   7     0.09%    22.78    19.14%   17.09%  30.69%  41.59%   15+ Years

The 15+ year index now has a longer average life and duration because the 4/15/2028 has fallen out of the index, while the newly auctioned 2/15/2043 has been added. In spite of this, the average yield has fallen from 0.26% to 0.09%. Additional weight from the 30-year auction also caused the duration of the broad 1+ Year index to edge up to 8.95% from 8.76%.

Here is a table showing the trend of yields since last October:

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   0-5         1-5         1+         15+
--------    --------    --------    ------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.29%)     (1.35%)     (0.82%)      0.03%   11/02/2012
(1.23%)     (1.33%)     (0.87%)     (0.08%)  11/09/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.01%)     (1.85%)     (0.94%)      0.21%   02/08/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013 <-- added 5/17/2013

Edit 5/17/2013: Update yields thru May 17th, using WSJ Prices 05/17/2013. The entire TIPS yield curve has risen about 0.3% points over the last 3 weeks. The 0-5 year short term index now yields -1.18% or 0.56% points less than the -0.62% yield of the 1+ years broad index. And as of 04/30/2013 the Fund total net assets have increased to $890.3 million from $754.0 million a month before.

The average yield on the broad 1+ Years index has been pretty stable during this period, ranging only between -0.78% and -0.94% for the days I sampled. Meanwhile the average yield on the 0-5 Years index has varied widely from -1.28% to -2.14%.

Total Net Assets of the new Vanguard short term (0 - 5 years) TIPS fund as of 3/31/2013 are up to $754.0 million including:

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   14.8 million  Investor shares (VTIPX) with 0.20% ER
  188.5 million  Admiral  shares (VTAPX) with 0.10% ER
  470.9 million  ETF             (VTIP)  with 0.10% ER

[#Cruncher]

I"ve updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 06/07/2013 and the weighting effects of recent auctions. As shown in the table below the 0-5 year short term index now yields -0.90% or 0.60% points less than the -0.30% yield of the 1+ years broad index.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.90%)    2.54     2.51%    2.46%   4.83%   7.12%    0 - 5 Years
  12    (1.06%)    3.01     2.96%    2.91%   5.70%   8.39%    1 - 5 Years
  34    (0.30%)    9.51     8.51%    7.94%  14.89%  21.00%    1+ Years
   7     0.77%    22.49    18.52%   16.57%  29.81%  40.47%   15+ Years

Here is a table showing the trend of yields since last October:

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   0-5         1-5         1+         15+
--------    --------    --------    ------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013
(0.90%)     (1.06%)     (0.30%)      0.77%   06/07/2013

Yields of all maturities have risen significantly since April.

[#Cruncher]

I"ve updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 06/21/2013 and the weighting effects of the 30-year auction this week. As shown in the table below the 0-5 year short term index now yields -0.56% or 0.77% points less than the +0.21% yield of the 1+ years broad index. (That's right, the weighted average YTM for the broad index of all TIPS maturing in one year or more is now positive!)

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.56%)    2.49     2.45%    2.41%   4.73%   6.96%    0 - 5 Years
  12    (0.62%)    2.96     2.91%    2.85%   5.60%   8.25%    1 - 5 Years
  34     0.21%     9.43     8.37%    7.82%  14.65%  20.67%    1+ Years
   7     1.23%    22.66    18.49%   16.53%  29.73%  40.34%  15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013
(0.90%)     (1.06%)     (0.30%)      0.77%   06/07/2013
(0.56%)     (0.62%)      0.21%       1.23%   06/21/2013

The climb since April in interest rates for all maturities has continued with a vengeance over the past two weeks.

[#Cruncher]

I"ve updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 07/19/2013 * and the weighting effect of the old 7/15/2013 maturing and the new 7/15/2023 issuance. As shown in the table below, the 0-5 year short term index now yields -1.16% or 1.04% points less than the -0.12% yield of the 1+ years broad index. This differential has widened over the past month.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.16%)    2.71     2.69%    2.63%   5.17%   7.61%    0 - 5 Years
  12    (1.12%)    3.16     3.13%    3.07%   6.01%   8.84%    1 - 5 Years
  34    (0.12%)    9.65     8.63%    8.05%  15.09%  21.29%    1+ Years
   7     1.02%    22.62    18.58%   16.60%  29.86%  40.51%   15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013
(0.90%)     (1.06%)     (0.30%)      0.77%   06/07/2013
(0.56%)     (0.62%)      0.21%       1.23%   06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%   07/19/2013

The rise in interest rates from April thru June turned around the past month -- especially for shorter maturities.

* As of 7/19/2013 the WSJ page doesn't yet include the newly issued 10-year TIPS maturing 7/15/2023. I estimated its yield to maturity to be 0.29%, the figure shown for the constant maturity 10-year TIPS on Daily Treasury Real Yield Curve Rates.

[#Cruncher]

I"ve updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 08/30/2013 and the weighting effect of the 5-year reissue today. As shown in the table below, the 0-5 year short term index now yields -0.79% or 1.00% points less than the +0.21% yield of the 1+ years broad index. This differential is about the same as last month.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.79%)    2.68     2.65%    2.59%   5.09%   7.50%    0 - 5 Years
  12    (0.74%)    3.12     3.08%    3.02%   5.93%   8.72%    1 - 5 Years
  34     0.21%     9.37     8.37%    7.82%  14.66%  20.70%    1+ Years
   7     1.24%    22.47    18.40%   16.46%  29.63%  40.22%   15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013
(0.56%)     (0.62%)      0.21%       1.23%   06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%   07/19/2013
(0.79%)     (0.74%)      0.21%       1.24%   08/30/2013

Interest rates have risen over the past month for all maturities. The 1+ broad index and the 15+ long term index are now yielding about what they did two months ago.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 09/20/2013 and the weighting effect of the 10-year reissue auctioned yesterday. As shown in the table below, the 0-5 year short term index now yields -0.87% or 0.93% points less than the +0.06% yield of the 1+ years broad index. This differential is about the same as last month.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.87%)    2.63     2.60%    2.55%   5.00%   7.37%    0 - 5 Years
  12    (0.91%)    3.07     3.04%    2.98%   5.84%   8.59%    1 - 5 Years
  34     0.06%     9.33     8.34%    7.80%  14.64%  20.67%    1+ Years
   7     1.19%    22.40    18.36%   16.43%  29.57%  40.15%   15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%   10/26/2012
(1.21%)     (1.32%)     (0.85%)     (0.06%)  11/16/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)  12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%   01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%   02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%   04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%   05/17/2013
(0.56%)     (0.62%)      0.21%       1.23%   06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%   07/19/2013
(0.79%)     (0.74%)      0.21%       1.24%   08/30/2013
(0.87%)     (0.91%)      0.06%       1.19%   09/20/2013

Interest rates have fallen modestly over the past month for all maturities.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 10/25/2013 and the weighting effect of the 30-year reissue auctioned Thursday. As shown in the table below, the 0-5 year short term index now yields -0.88% or 0.81% points less than the -0.07% yield of the 1+ years broad index. This differential is slightly smaller than last month. The yield for the 1+ years broad index has slipped back to negative and its average modified duration is up slightly to 8.44% with the extra weighting from the 30-year auction.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.88%)    2.54     2.51%    2.46%   4.84%   7.12%    0 - 5 Years
  12    (1.00%)    2.98     2.95%    2.89%   5.67%   8.35%    1 - 5 Years
  34    (0.07%)    9.42     8.44%    7.88%  14.77%  20.83%    1+ Years
   7     1.06%    22.60    18.71%   16.72%  30.06%  40.77%   15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(1.36%)     (1.46%)     (0.78%)      0.17%     01/04/2013
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013

Interest rates have have continued to fall modestly over the past month for all four indexes.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 11/22/2013 and the weighting effect of the 10-year reissue auctioned Thursday. As shown in the table below, the 0-5 year short term index now yields -0.75% or 0.79% points less than the +0.04% yield of the 1+ years broad index. This differential is about the same as last month.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.75%)    2.46     2.43%    2.39%   4.69%   6.91%    0 - 5 Years
  12    (1.00%)    2.90     2.87%    2.82%   5.53%   8.14%    1 - 5 Years
  34     0.04%     9.24     8.27%    7.73%  14.50%  20.48%    1+ Years
   7     1.27%    22.46    18.47%   16.51%   9.72%  40.33%   15+ Years

Here is a table showing the trend of yields since last October:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013

Interest rates rose modestly for longer maturities over the past month.

[stevewolfe]

#Cruncher it's been a while that you've been maintaining this post faithfully for the benefit of the community on a monthly basis and I wanted to say thank you for doing that as this is very informative!

[#Cruncher]

You're welcome, Steve; I appreciate it.

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 12/20/2013 and the weighting effect of the 5-year reissue auctioned Thursday. As shown in the table below, the 0-5 year short term index now yields -0.65% or 0.83% points less than the 0.18% yield of the 1+ years broad index. However, the Jan 15, 2014, that matures in less than a month, has an anomalous return. Excluding it from the 0-5 year index produces a significantly lower average yield of -0.91%.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.65%)    2.46     2.43%    2.38%   4.68%   6.90%    0 - 5 Years
  12    (0.87%)    2.90     2.86%    2.81%   5.51%   8.11%    1 - 5 Years
  34     0.18%     9.07     8.11%    7.58%  14.23%  20.10%    1+ Years
   7     1.34%    22.39    18.37%   16.43%  29.58%  40.15%   15+ Years

Here is a table showing the trend of yields since October 2012:

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  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013

Yields rose modestly for all maturities over the past month. Over the past year, yields for the 1+ and 15+ indexes have risen more than 1% point.

[FoolStreet]

In Oct 12 of last year, Simplegift asked for the layman "net," which was to stay short since the premium wasn't worth it. In the most recent monthly analysis (Thank you #Cruncher, by the way), it appears that the last few months have shown >1% premium for long vs. the next shortest fund. So, it seems worth it now? (I have split my FI between roughly 1/3 one-year treasuries, 1/3 TBM, and 1/3 Vanguard TIPS fund).

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 01/24/2014 and the weighting effect of the 10-year initial issue auctioned Thursday. As shown in the table below, the 0-5 year short term index now yields -1.15% or 1.19% points less than the +0.04% yield of the 1+ years broad index. This means one must accept a pretty big reduction in yield in exchange for reducing interest rate risk.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.15%)    2.65     2.62%    2.57%   5.05%   7.43%    0 - 5 Years
  12    (1.01%)    3.06     3.02%    2.96%   5.82%   8.56%    1 - 5 Years
  34     0.04%     9.27     8.33%    7.79%  14.61%  20.63%    1+ Years
   6     1.19%    23.37    19.22%   17.13%  30.72%  41.56%   15+ Years

Here is a table showing the trend of yields since October 2012:

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014

Yields fell modestly for the 1-5, 1+, & 15+ indexes over the past month. The 0-5 index's considerable fall is due mainly to the elimination of the Jan 15, 2014 maturity which had been skewing the average. The 15+ index now only has six constituents since the Jan 15, 2029 now matures in less than 15 years. (However, I notice that the PIMCO 15+ Year U.S. TIPS Index ETF (LTPZ) still includes it at full market weight as of 1/23/2014.)

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 02/21/2014 (1) and the weighting effect of the new 30-year TIPS auctioned Thursday. As shown in the table below, the 1-5 year short term index (2) now yields -1.17% or 1.17% points less than the 0.00% yield of the 1+ years broad index. This is the largest differential between these two indexes since I started this thread over a year ago. In choosing a short term fund over a broad fund, one gives up a lot of yield to reduce interest rate risk.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.47%)    2.57     2.55%    2.50%   4.91%   7.22%    0 - 5 Years
  12    (1.17%)    2.98     2.95%    2.89%   5.67%   8.35%    1 - 5 Years
  35     0.00%     9.34     8.37%    7.81%  14.65%  20.66%    1+ Years
   7     1.27%    23.66    19.48%   17.34%  31.06%  41.99%   15+ Years

Here is a table showing the trend of yields since October 2012:

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014

Over the past month yields fell for the 1-5 and 1+ indexes, but rose for the 15+ index. The latter is partially due to the inclusion of the new 30-year TIPS auctioned yesterday which has a yield of over 1.4%.

1. The WSJ web page doesn't yet list the new 1.375% Feb 2044 30-year TIPS. I got its price and yield from Bloomberg US Gov't Bonds.
2. Starting this month I'm comparing against the 1-5 index instead of the 0-5 index. The reason is that real yield (which ignores the CPI adjustment) isn't a good measure of expected returns for TIPS maturing within several months. For example, the price of the TIPS maturing on April 15, 2014 reflects the known CPI adjustment through 4/1/2014, only a couple of weeks before it matures.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 03/21/2014 (1) and the weighting effect of the 10-year TIPS re-auctioned Thursday. As shown in the table below, the 1-5 year short term index now yields -0.96% or 1.05% points less than the 0.09% yield of the 1+ years broad index. This differential is slightly smaller than last month's.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.31%)    2.49     2.46%    2.42%   4.75%   7.00%    0 - 5 Years
  12    (0.96%)    2.90     2.87%    2.81%   5.52%   8.13%    1 - 5 Years
  35     0.09%     9.34     8.37%    7.81%  14.64%  20.65%    1+ Years
   7     1.19%    23.65    19.52%   17.37%  31.12%  42.06%   15+ Years

Here is a table showing the trend of yields since October 2012:

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014

Over the past month yields rose for the 0-5, 1-5 and 1+ indexes, but fell for the 15+ index.

1. The WSJ web page still doesn't yet list the new 1.375% Feb 2044 30-year TIPS. I got its price from Bloomberg US Gov't Bonds.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 04/25/2014 and the weighting effect of the 5-year TIPS auctioned last week. As shown in the table below, the 1-5 year short term index now yields -1.04% or 1.01% points less than the -0.03% yield of the 1+ years broad index. This differential is about the same as last month's.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.36%)    2.62     2.60%    2.55%   5.00%   7.36%    0 - 5 Years
  12    (1.04%)    3.06     3.03%    2.97%   5.83%   8.57%    1 - 5 Years
  35    (0.03%)    9.46     8.51%    7.94%  14.87%  20.96%    1+ Years
   6     1.07%    26.71    22.35%   19.71%  34.99%  46.88%   15+ Years

Here is a table showing the trend of yields since October 2012:

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014
(1.36%)     (1.04%)     (0.03%)      1.07%     04/25/2014

Over the past month yields fell for all indexes. Since the April 15 2029 now matures in less than 15 years, the 15+ index now includes only six maturities (April 2032 & February 2040-2044). This has caused its average maturity to increase from 23.65 to 26.71 years with correspondingly more sensitivity to interest rates. In spite of this the average yield has fallen from 1.19% last month to 1.07% today.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 05/23/2014 and the weighting effect of the 10-year TIPS auctioned yesterday. As shown in the table below, the 1-5 year short term index now yields -1.13% or 0.99% points less than the -0.14% yield of the 1+ years broad index. This differential is about the same as last month.

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                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.34%)    2.55     2.52%    2.48%   4.86%   7.16%    0 - 5 Years
  12    (1.13%)    2.99     2.95%    2.90%   5.69%   8.37%    1 - 5 Years
  35    (0.14%)    9.40     8.47%    7.91%  14.81%  20.89%    1+ Years
   6     1.01%    26.62    22.31%   19.67%  34.93%  46.82%   15+ Years

Here is a table showing the trend of yields since October 2012. (Note: now in descending chronological order.)

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.34%)     (1.13%)     (0.14%)      1.01%     05/23/2014
(1.36%)     (1.04%)     (0.03%)      1.07%     04/25/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012

Over the past month yields continued to fall for all indexes except the 0-5 which was about the same.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 06/20/2014 and the weighting effect of the 30-year TIPS auctioned yesterday. As shown in the table below, the 1-5 year short term index now yields -1.11% or 1.01% points less than the -0.10% yield of the 1+ years broad index. This differential is about the same as last month.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (1.34%)    2.47     2.45%    2.40%   4.72%   6.95%    0 - 5 Years
  12    (1.11%)    2.91     2.88%    2.82%   5.54%   8.16%    1 - 5 Years
  35    (0.10%)    9.47     8.50%    7.93%  14.84%  20.90%    1+ Years
   6     1.04%    26.74    22.35%   19.71%  34.98%  46.87%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(1.34%)     (1.11%)     (0.10%)      1.04%     06/20/2014
(1.34%)     (1.13%)     (0.14%)      1.01%     05/23/2014
(1.36%)     (1.04%)     (0.03%)      1.07%     04/25/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012

Yields hardly changed over the past month.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 07/25/2014 and the weighting effect of the 10-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is -0.10% or 0.78% points more than the -0.88% yield of the 1-5 year short term index. This yield advantage of the 1+ index shrunk about 0.2% point from last month. I.e., the yield curve got less steep.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.92%)    2.65     2.62%    2.57%   5.05%   7.44%    0 - 5 Years
  12    (0.88%)    3.07     3.03%    2.97%   5.83%   8.58%    1 - 5 Years
  35    (0.10%)    9.68     8.74%    8.14%  15.22%  21.44%    1+ Years
   6     0.83%    26.67    22.43%   19.77%  35.09%  47.02%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(0.92%)     (0.88%)     (0.10%)      0.83%     07/25/2014
(1.34%)     (1.11%)     (0.10%)      1.04%     06/20/2014
(1.34%)     (1.13%)     (0.14%)      1.01%     05/23/2014
(1.36%)     (1.04%)     (0.03%)      1.07%     04/25/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012

Short term yields rose while long term yields fell. This is the first time the yield of the 15+ long term index has fallen below 1% for over a year.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 09/19/2014 and the weighting effect of the 5-year TIPS auctioned last month and the 10-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is +0.31% or 0.67% points more than the -0.36% yield of the 1-5 year short term index. This yield advantage of the 1+ index shrunk about 0.1% point from two months ago continuing to make the yield curve less steep.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.30%)    2.58     2.54%    2.49%   4.90%   7.21%    0 - 5 Years
  12    (0.36%)    2.99     2.95%    2.89%   5.67%   8.35%    1 - 5 Years
  35     0.31%     9.37     8.44%    7.87%  14.75%  20.80%    1+ Years
   6     1.08%    26.50    22.23%   19.62%  34.85%  46.73%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

  0-5         1-5          1+         15+
-------     -------     -------     -------
(0.30%)     (0.36%)      0.31%       1.08%     09/19/2014
(0.92%)     (0.88%)     (0.10%)      0.83%     07/25/2014
(1.34%)     (1.11%)     (0.10%)      1.04%     06/20/2014
(1.34%)     (1.13%)     (0.14%)      1.01%     05/23/2014
(1.36%)     (1.04%)     (0.03%)      1.07%     04/25/2014
(1.31%)     (0.96%)      0.09%       1.19%     03/21/2014
(1.47%)     (1.17%)      0.00%       1.27%     02/21/2014
(1.15%)     (1.01%)      0.04%       1.19%     01/24/2014
(0.65%)     (0.87%)      0.18%       1.34%     12/20/2013
(0.75%      (1.00%)      0.04%       1.27%     11/22/2013
(0.88%)     (1.00%)     (0.07%)      1.06%     10/25/2013
(0.87%)     (0.91%)      0.06%       1.19%     09/20/2013
(0.79%)     (0.74%)      0.21%       1.24%     08/30/2013
(1.16%)     (1.12%)     (0.12%)      1.02%     07/19/2013
(0.56%)     (0.62%)      0.21%       1.23%     06/21/2013
(1.18%)     (1.33%)     (0.62%)      0.44%     05/17/2013
(1.47%)     (1.59%)     (0.93%)      0.09%     04/26/2013
(2.14%)     (1.89%)     (0.92%)      0.26%     02/15/2013
(1.29%)     (1.43%)     (0.87%)     (0.01%)    12/21/2012
(1.28%)     (1.33%)     (0.78%)      0.06%     10/26/2012

All yields have risen during the past two months. All indexes except the 15+ now have the highest yields since I started this thread two years ago.

[jdb]

William Bernstein in Rational Expectations stated that "Unless your account size is tiny it makes no sense to own a Treasury or government-bond fund, since you can buy these at auction and hold them at no cost. The same goes double for TIPS...If..you hold a TIPS fund you pay unnecessary fund fees". This makes sense to me, am buying TIPS at auctions to create ladder. Appreciate all the number crunching but much simpler setting up a TIPS ladder than worrying about appropriate fund.

[elgob.bogle]

I happen to agree with you for my situation. However, I want to thank #Cruncher for providing invaluable information. IMO, it is sad that Vanguard is squandering an opportunity to educate potential buyers by providing this kind of information.

elgob

[grok87]

30 year tips auction coming up next month...

[#Cruncher]

"...The same goes double for TIPS..."

I disagree. If held in a tax advantaged account, the fund vs individual bond comparison is the same for TIPS and nominal Treasuries. But if held in a taxable account, a fund is more advantageous for TIPS than for nominals. This is because the tax accounting for individual TIPS is more complicated than it is for individual nominal Treasuries. While, if held in a fund, the tax accounting is the same for both.

Appreciate all the number crunching but much simpler setting up a TIPS ladder than worrying about appropriate fund.

Whether buying a TIPS fund or individual TIPS, one has to "worry" about the yield / duration tradeoff between TIPS of different maturities. This includes designing a TIPS ladder where one needs to decide how many years it will extend.

IMO, it is sad that Vanguard is squandering an opportunity to educate potential buyers by providing this kind of information.

When Vanguard introduced the short term TIPS index fund a couple of years ago, it published a PDF, The long and short of TIPS (which is discussed in the thread, The Long and Short of TIPS (new VG paper)). Unfortunately, in my opinion, this paper gives undue importance to short-term correlation between a TIPS fund's return and the Consumer Price Index.

30 year tips auction coming up next month...

Since the last 30-Year TIPS Auction on 6/19/2014, the TIPS yield curve has gotten less steep, as shown below. (From Daily Treasury Real Yield Curve Rates 2014.)

Code: Select all

DATE        5 YR   7 YR  10 YR  20 YR  30 YR
--------   -----   ----  -----  -----  -----
06/19/14   -0.31   0.23   0.39   0.87   1.14
09/19/14    0.27   0.51   0.56   0.86   1.11
           -----   ----  -----  -----  -----
Change     +0.58  +0.32  +0.17  -0.01  -0.03

This strengthens the argument for sticking with shorter term TIPS now in hope of higher 30-year yields in a few years.

[Bustoff]

#Cruncher it's been a while that you've been maintaining this post faithfully for the benefit of the community on a monthly basis and I wanted to say thank you for doing that as this is very informative!

+1
Helped me with the ladder process.

[jdb]

"...The same goes double for TIPS..."

I disagree. If held in a tax advantaged account, the fund vs individual bond comparison is the same for TIPS and nominal Treasuries. But if held in a taxable account, a fund is more advantageous for TIPS than for nominals. This is because the tax accounting for individual TIPS is more complicated than it is for individual nominal Treasuries. While, if held in a fund, the tax accounting is the same for both.

Good point about taxable account. But in a tax deferred account a ladder built on auction purchases would avoid the annual TIPS fund expenses so would seem preferable. Good point about the yield curve.

[grok87]

30 year tips auction coming up next month...

Since the last 30-Year TIPS Auction on 6/19/2014, the TIPS yield curve has gotten less steep, as shown below. (From Daily Treasury Real Yield Curve Rates 2014.)

Code: Select all

DATE        5 YR   7 YR  10 YR  20 YR  30 YR
--------   -----   ----  -----  -----  -----
06/19/14   -0.31   0.23   0.39   0.87   1.14
09/19/14    0.27   0.51   0.56   0.86   1.11
           -----   ----  -----  -----  -----
Change     +0.58  +0.32  +0.17  -0.01  -0.03

This strengthens the argument for sticking with shorter term TIPS now in hope of higher 30-year yields in a few years.

thanks for the comparison. very helpful.
personally i'm going to be dollar cost averaging in for my usual amount. My crystal ball is cloudy for what direction 30 year tips yields will be moving (up or down who knows?)

[Doc]

My crystal ball is cloudy for what direction 30 year tips yields will be moving (up or down who knows?)

With the current rate of ~1 and a historical rate of arguably ~3 it is obvious that the probability is that the rates will move up. The question is not whether they are more likely to move up than down but when.

Based on #cruncher's post I would currently buy the seven and give up that extra 0.6% for the first seven years.

[grok87]

My crystal ball is cloudy for what direction 30 year tips yields will be moving (up or down who knows?)

With the current rate of ~1 and a historical rate of arguably ~3 it is obvious that the probability is that the rates will move up. The question is not whether they are more likely to move up than down but when.

Based on #cruncher's post I would currently buy the seven and give up that extra 0.6% for the first seven years.

Thanks Doc. Always appreciate the push-back. I'm buying them (30 year tips) because they are a good match for my expected retirement liabilities. As far as which way rates are headed, another interesting thing to look at is the real yield on other countries inflation linked bonds. Many of these are lower than the US. Here is a comparison for the 10 year TIPs (only a few countries issue 30 year TIPs):

10 year inflation-linked bond real rate @9/24/14
Australia..... 1.23%
Brazil......... 5.82%
Canada....... 0.40%
Chile......... 1.55%
France....... -0.32%
Germany.....-0.45%
Israel..........0.57%
Italy...........1.20%
Japan......... -0.70%
Mexico........ 2.50%
S. Africa...... 1.62%
Spain.......... 0.84%
Sweden....... -0.14%
UK............. -0.46%
US............. 0.51%

1. The main point of posting this is, what if we follow Core Europe and Japan the 10 year US TIP heads toward -0.5%???

2. If I were to summarize this data from an US investors perspective in terms of risk/reward it would be as follows:

Canada, Israel: Similar real yields to the US but with currency risk. NO THANKS.
Brazil, Chile, Mexico, S. Africa: Higher real yields are tempting. But which one of these will be the next Argentina and cook their inflation data. NO THANKS.
France, Germany, UK, Sweden: Negative real rates. YUCK
Spain, Italy: Peripheral Europe Bonds. YUCK

that leaves...

Australia!!!

Could be interesting, question is does the higher real yield compensate you enough for the currency risk?

cheers.

[#Cruncher]

Notice: I'm adding an index for TIPS maturing in 1 to 10 years in recognition of the SPDR® Barclays 1-10 Year TIPS ETF, symbol TIPX. This small index fund has been around since May 2013, but I only noticed it a few weeks ago. It might be a good compromise for those investors who find the duration of the 1-5 index too short and the duration of the 1+ index too long. TIPX's 5.3 duration is similar to the 5.6 of the popular Vanguard Total Bond Market Index Fund (which only holds nominal bonds).

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 10/24/2014 and the weighting effect of the 30-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is +0.17% or 0.65% points more than the -0.48% yield of the 1-5 year short term index, and 0.27% more than the -0.10% yield of the 1-10 year index. This yield advantage of the 1+ index is about the same as last month.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.26%)    2.49     2.45%    2.41%   4.73%   6.97%    0 - 5 Years
  12    (0.48%)    2.90     2.86%    2.81%   5.51%   8.11%    1 - 5 Years
  22    (0.10%)    5.35     5.26%    5.08%   9.82%  14.24%    1 - 10 Years
  35     0.17%     9.49     8.55%    7.96%  14.89%  20.97%    1+ Years
   6     0.94%    26.59    22.37%   19.73%  35.04%  46.97%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

    0-5         1-5         1-10         1+         15+
  -------     -------     -------     -------     -------
  (0.26%)     (0.48%)     (0.10%)      0.17%       0.94%     10/24/2014
  (0.30%)     (0.36%)      0.05%       0.31%       1.08%     09/19/2014
  (0.92%)     (0.88%)                 (0.10%)      0.83%     07/25/2014
  (1.34%)     (1.11%)                 (0.10%)      1.04%     06/20/2014
  (1.34%)     (1.13%)                 (0.14%)      1.01%     05/23/2014
  (1.36%)     (1.04%)                 (0.03%)      1.07%     04/25/2014
  (1.31%)     (0.96%)                  0.09%       1.19%     03/21/2014
  (1.47%)     (1.17%)                  0.00%       1.27%     02/21/2014
  (1.15%)     (1.01%)                  0.04%       1.19%     01/24/2014
  (0.65%)     (0.87%)                  0.18%       1.34%     12/20/2013
  (0.75%      (1.00%)                  0.04%       1.27%     11/22/2013
  (0.88%)     (1.00%)                 (0.07%)      1.06%     10/25/2013
  (0.87%)     (0.91%)                  0.06%       1.19%     09/20/2013
  (0.79%)     (0.74%)                  0.21%       1.24%     08/30/2013
  (1.16%)     (1.12%)                 (0.12%)      1.02%     07/19/2013
  (0.56%)     (0.62%)                  0.21%       1.23%     06/21/2013
  (1.18%)     (1.33%)                 (0.62%)      0.44%     05/17/2013
  (1.47%)     (1.59%)                 (0.93%)      0.09%     04/26/2013
  (2.14%)     (1.89%)                 (0.92%)      0.26%     02/15/2013
  (1.29%)     (1.43%)                 (0.87%)     (0.01%)    12/21/2012
  (1.28%)     (1.33%)                 (0.78%)      0.06%     10/26/2012

Except for the 0-5 index, all yields have fallen slightly over the last month, between 0.12% and 0.15% points.

[#Cruncher]

For the first time since I started this thread over two years ago, the yields of all indexes are positive.

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 12/19/2014 and the weighting effect of the 10-year TIPS auctioned last month and the 5-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is +0.41% or 0.28% points more than the 0.13% yield of the 1-5 year short term index, and 0.13% more than the 0.28% yield of the 1-10 year index. This yield advantage of the 1+ index is much smaller than it was two months ago.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15     0.62%     2.41     2.37%    2.32%   4.56%   6.72%    0 - 5 Years
  12     0.13%     2.82     2.77%    2.72%   5.34%   7.86%    1 - 5 Years
  22     0.28%     5.26     5.17%    4.99%   9.64%  13.99%    1 - 10 Years
  35     0.41%     9.37     8.44%    7.86%  14.70%  20.70%    1+ Years
   6     0.81%    26.46    22.33%   19.70%  35.00%  46.92%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

    0-5         1-5         1-10         1+         15+
  -------     -------     -------     -------     -------
   0.62%       0.13%       0.28%       0.41%       0.81%     12/19/2014
  (0.26%)     (0.48%)     (0.10%)      0.17%       0.94%     10/24/2014
  (0.30%)     (0.36%)      0.05%       0.31%       1.08%     09/19/2014
  (0.92%)     (0.88%)                 (0.10%)      0.83%     07/25/2014
  (1.34%)     (1.11%)                 (0.10%)      1.04%     06/20/2014
  (1.34%)     (1.13%)                 (0.14%)      1.01%     05/23/2014
  (1.36%)     (1.04%)                 (0.03%)      1.07%     04/25/2014
  (1.31%)     (0.96%)                  0.09%       1.19%     03/21/2014
  (1.47%)     (1.17%)                  0.00%       1.27%     02/21/2014
  (1.15%)     (1.01%)                  0.04%       1.19%     01/24/2014
  (0.65%)     (0.87%)                  0.18%       1.34%     12/20/2013
  (0.75%      (1.00%)                  0.04%       1.27%     11/22/2013
  (0.88%)     (1.00%)                 (0.07%)      1.06%     10/25/2013
  (0.87%)     (0.91%)                  0.06%       1.19%     09/20/2013
  (0.79%)     (0.74%)                  0.21%       1.24%     08/30/2013
  (1.16%)     (1.12%)                 (0.12%)      1.02%     07/19/2013
  (0.56%)     (0.62%)                  0.21%       1.23%     06/21/2013
  (1.18%)     (1.33%)                 (0.62%)      0.44%     05/17/2013
  (1.47%)     (1.59%)                 (0.93%)      0.09%     04/26/2013
  (2.14%)     (1.89%)                 (0.92%)      0.26%     02/15/2013
  (1.29%)     (1.43%)                 (0.87%)     (0.01%)    12/21/2012
  (1.28%)     (1.33%)                 (0.78%)      0.06%     10/26/2012

The TIPS yield curve got dramatically shallower over the past two months. Yields of the 0-5 and 1-5 indexes rose significantly; yields of the 1-10 and 1+ indexes rose modestly; and the yield of the 15+ index fell slightly.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 01/23/2015 and the weighting effect of the 10-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is 0.10% or 0.34% points more than the -0.24% yield of the 1-5 year short term index, and 0.15% more than the -0.05% yield of the 1-10 year index. This yield advantage of the 1+ index is about the same as it was a month ago.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15     0.16%     2.59     2.56%    2.51%   4.93%   7.26%    0 - 5 Years
  12    (0.24%)    2.97     2.93%    2.88%   5.65%   8.31%    1 - 5 Years
  23    (0.05%)    5.62     5.51%    5.32%  10.26%  14.86%    1 - 10 Years
  35     0.10%     9.53     8.64%    8.04%  15.04%  21.17%    1+ Years
   6     0.60%    26.38    22.39%   19.76%  35.10%  47.06%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

    0-5         1-5         1-10         1+         15+
  -------     -------     -------     -------     -------
   0.16%      (0.24%)     (0.05%)      0.10%       0.60%     01/23/2015
   0.62%       0.13%       0.28%       0.41%       0.81%     12/19/2014
  (0.26%)     (0.48%)     (0.10%)      0.17%       0.94%     10/24/2014
  (0.30%)     (0.36%)      0.05%       0.31%       1.08%     09/19/2014
  (0.92%)     (0.88%)                 (0.10%)      0.83%     07/25/2014
  (1.34%)     (1.11%)                 (0.10%)      1.04%     06/20/2014
  (1.34%)     (1.13%)                 (0.14%)      1.01%     05/23/2014
  (1.36%)     (1.04%)                 (0.03%)      1.07%     04/25/2014
  (1.31%)     (0.96%)                  0.09%       1.19%     03/21/2014
  (1.47%)     (1.17%)                  0.00%       1.27%     02/21/2014
  (1.15%)     (1.01%)                  0.04%       1.19%     01/24/2014
  (0.65%)     (0.87%)                  0.18%       1.34%     12/20/2013
  (0.75%      (1.00%)                  0.04%       1.27%     11/22/2013
  (0.88%)     (1.00%)                 (0.07%)      1.06%     10/25/2013
  (0.87%)     (0.91%)                  0.06%       1.19%     09/20/2013
  (0.79%)     (0.74%)                  0.21%       1.24%     08/30/2013
  (1.16%)     (1.12%)                 (0.12%)      1.02%     07/19/2013
  (0.56%)     (0.62%)                  0.21%       1.23%     06/21/2013
  (1.18%)     (1.33%)                 (0.62%)      0.44%     05/17/2013
  (1.47%)     (1.59%)                 (0.93%)      0.09%     04/26/2013
  (2.14%)     (1.89%)                 (0.92%)      0.26%     02/15/2013
  (1.29%)     (1.43%)                 (0.87%)     (0.01%)    12/21/2012
  (1.28%)     (1.33%)                 (0.78%)      0.06%     10/26/2012

Yields of all maturities fell over the past month with shorter term falling more than longer term.

[#Cruncher]

I've updated the Yield to Maturity and Duration Calculator with WSJ TIPS Prices 03/20/2015 and the weighting effect of the 30-year TIPS auctioned last month and the 10-year TIPS auctioned yesterday. As shown in the table below, the weighted average yield of the 1+ years broad index is -0.05% or 0.55% points more than the -0.60% yield of the 1-5 year short term index, and 0.21% points more than the -0.26% yield of the 1-10 year index. This yield advantage of the 1+ index has increased from what it was two months ago.

Code: Select all

                            Real       Fall if Rates Rise
  #       Real      Avg   Modified    --------------------
TIPS      YTM      Life   Duration     1%      2%      3%       Index
-----    ------    ----   --------   -----   -----   -----   ------------
  15    (0.74%)    2.44     2.41%    2.37%   4.65%   6.85%    0 - 5 Years
  12    (0.60%)    2.82     2.78%    2.73%   5.36%   7.90%    1 - 5 Years
  23    (0.26%)    5.57     5.45%    5.26%  10.14%  14.69%    1 - 10 Years
  36    (0.05%)    9.54     8.66%    8.05%  15.04%  21.15%    1+ Years
   7     0.58%    26.45    22.64%   19.97%  35.45%  47.50%   15+ Years

Here is a table showing the trend of yields since October 2012.

Code: Select all

    0-5         1-5         1-10         1+         15+
  -------     -------     -------     -------     -------
  (0.74%)     (0.60%)     (0.26%)     (0.05%)      0.58%     03/20/2015
   0.16%      (0.24%)     (0.05%)      0.10%       0.60%     01/23/2015
   0.62%       0.13%       0.28%       0.41%       0.81%     12/19/2014
  (0.26%)     (0.48%)     (0.10%)      0.17%       0.94%     10/24/2014
  (0.30%)     (0.36%)      0.05%       0.31%       1.08%     09/19/2014
  (0.92%)     (0.88%)                 (0.10%)      0.83%     07/25/2014
  (1.34%)     (1.11%)                 (0.10%)      1.04%     06/20/2014
  (1.34%)     (1.13%)                 (0.14%)      1.01%     05/23/2014
  (1.36%)     (1.04%)                 (0.03%)      1.07%     04/25/2014
  (1.31%)     (0.96%)                  0.09%       1.19%     03/21/2014
  (1.47%)     (1.17%)                  0.00%       1.27%     02/21/2014
  (1.15%)     (1.01%)                  0.04%       1.19%     01/24/2014
  (0.65%)     (0.87%)                  0.18%       1.34%     12/20/2013
  (0.75%      (1.00%)                  0.04%       1.27%     11/22/2013
  (0.88%)     (1.00%)                 (0.07%)      1.06%     10/25/2013
  (0.87%)     (0.91%)                  0.06%       1.19%     09/20/2013
  (0.79%)     (0.74%)                  0.21%       1.24%     08/30/2013
  (1.16%)     (1.12%)                 (0.12%)      1.02%     07/19/2013
  (0.56%)     (0.62%)                  0.21%       1.23%     06/21/2013
  (1.18%)     (1.33%)                 (0.62%)      0.44%     05/17/2013
  (1.47%)     (1.59%)                 (0.93%)      0.09%     04/26/2013
  (2.14%)     (1.89%)                 (0.92%)      0.26%     02/15/2013
  (1.29%)     (1.43%)                 (0.87%)     (0.01%)    12/21/2012
  (1.28%)     (1.33%)                 (0.78%)      0.06%     10/26/2012

Yields of short terms TIPS have fallen from two months ago, while long term yields are about the same.

[ps56k]

If I were to summarize this data from an US investors perspective in terms of risk/reward it would be as follows:
Canada, Israel: Similar real yields to the US but with currency risk. NO THANKS.
Brazil, Chile, Mexico, S. Africa: Higher real yields are tempting. But which one of these will be the next Argentina and cook their inflation data. NO THANKS.
France, Germany, UK, Sweden: Negative real rates. YUCK
Spain, Italy: Peripheral Europe Bonds. YUCK
that leaves... Australia!!!
Could be interesting, question is does the higher real yield compensate you enough for the currency risk?

SO - this does not seem to paint a pretty picture for International Bonds Index - like Vanguard VTIBX -
do we stay with VIPSX, move to the SPDR version TIPX,
or just good old VBMFX -