30 year tips yield @0.247%!!!

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grok87
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30 year tips yield @0.247%!!!

Post by grok87 » Thu Nov 08, 2012 2:32 pm

Wow! just Wow!
How low can this get? Is it going to turn negative? I bonds are looking like a much better alternative with 0% yield and no interest rate risk.
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richard
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Re: 30 year tips yield @0.247%!!!

Post by richard » Thu Nov 08, 2012 2:36 pm

There's no limit on how low it can go. The 5 year is at -1.5%.

Rates have been dropping pretty steadily for a long time

Alas, there are severe limits on how many ibonds you can buy.

hillman
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Re: 30 year tips yield @0.247%!!!

Post by hillman » Thu Nov 08, 2012 2:39 pm

Mr. Lindauer posted his thoughts on why there are, as you put it, severe limits on I Bond purchases. Don't think you're going to be too happy. . .

http://www.bogleheads.org/forum/viewtopic.php?t=105092
Re: What would it take for I bond fixed rates to climb?
by Mel Lindauer » Mon Nov 05, 2012 7:47 pm

There are lots of signs that the rate may never go about 0%, since it appears that Treasury might want to do away with I Bonds entirely. They may well see these as long-time losers for the government, given almost certain future inflation down the pike.

Witness the lowering of I Bond purchase limits from $30k per SS# to $10K per SS# ($5k paper and $5k online), then temporarily to $5k when they eliminated the paper I Bonds, the elimination of the payroll savings plan, the elimination of the guarantees that came with paper I Bonds, etc.

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Re: 30 year tips yield @0.247%!!!

Post by hlfo718 » Thu Nov 08, 2012 2:43 pm

Where are those "Experts" who said TIPS were over priced when the 30 was yielding 2+%?

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Re: 30 year tips yield @0.247%!!!

Post by richard » Thu Nov 08, 2012 2:56 pm

hlfo718 wrote:Where are those "Experts" who said TIPS were over priced when the 30 was yielding 2+%?
Continuing to make predictions while brimming with confidence.

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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Thu Nov 08, 2012 4:05 pm

richard wrote:
hlfo718 wrote:Where are those "Experts" who said TIPS were over priced when the 30 was yielding 2+%?
Continuing to make predictions while brimming with confidence.
Not sure about the "Experts". Personally I thought they were a screaming buy at 2% real yield and still do
http://www.bogleheads.org/forum/viewtop ... 10&t=64679
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Re: 30 year tips yield @0.247%!!!

Post by Browser » Thu Nov 08, 2012 4:17 pm

Note to self: maybe we're going to have a depression - you should buy some more bonds on Monday.
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Re: 30 year tips yield @0.247%!!!

Post by scone » Thu Nov 08, 2012 4:23 pm

I finally sold my VIPSX fund today. I just can't justify having such a specialized bond fund. I'll buy some more BND (Total Bond) and maybe some more Wellesley.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: 30 year tips yield @0.247%!!!

Post by Occupier » Thu Nov 08, 2012 6:34 pm

If you want to try an alternative go see WIP World Inflation Protected. I think with inflation protection it yielded 4% or so last year. What it is is a State Street ETF that follows an index of inflation protected bonds from around the world. It's about half developed countries like Sweden and half emerging countries like South Africa. (The have a lot of gold in the ground). You do get inflation protection but also take on some currency risk. I rolled out of TIPS and into WIP a year or two ago. I don't mind the currency risk and I like the idea of diversifying away from the dollar, and still having some inflation protection. Note you don't want more than a portion of your bond allocation in WIP but I just put the 10% I had in TIPS. Dave

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Re: 30 year tips yield @0.247%!!!

Post by Valuethinker » Fri Nov 09, 2012 3:23 am

scone wrote:I finally sold my VIPSX fund today. I just can't justify having such a specialized bond fund. I'll buy some more BND (Total Bond) and maybe some more Wellesley.
You've really not got your head around TIPS.

They are not 'specialized' any more than US T Bonds are.

They are unique. But what is unique is protection against unexpected inflation- a very rare thing in financial markets.

In practice your TBM fund in the short term will probably have similar performance *unless* there is a spike in inflation.

Wellesley is of course a totally different beast, because it hold stocks.

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Re: 30 year tips yield @0.247%!!!

Post by Valuethinker » Fri Nov 09, 2012 3:25 am

Occupier wrote: emerging countries like South Africa. (The have a lot of gold in the ground).
Yes. And they also have a major miner's strike going on, which is calling into question the whole legitimacy of the ANC government. The place smells like a train wreck which could happen. One hopes not another Zimbabwe, but there is that risk-- the youth wing of the ANC sounds pretty extreme in its calls for de facto nationalization of the mining industry.

And South African gold production is generally falling-- the mines are some of the oldest in the world, and are the deepest.

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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Fri Nov 09, 2012 8:26 am

now yield is 0.219%! How long before we have a 0.1% handle
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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Fri Nov 09, 2012 8:29 am

Valuethinker wrote:
Occupier wrote: emerging countries like South Africa. (The have a lot of gold in the ground).
Yes. And they also have a major miner's strike going on, which is calling into question the whole legitimacy of the ANC government. The place smells like a train wreck which could happen. One hopes not another Zimbabwe, but there is that risk-- the youth wing of the ANC sounds pretty extreme in its calls for de facto nationalization of the mining industry.

And South African gold production is generally falling-- the mines are some of the oldest in the world, and are the deepest.
agree. Plus there is the issue that emerging markets may start to cheat on their measuring of inflation if they hit high/hyper inflation. Argentina is the poster child for this.
http://www.bloomberg.com/news/2012-09-1 ... -data.html
Argentina has about $37.6 billion of bonds tied to the official inflation index, which account for 21 percent of government debt, according to Barclays Plc. The government’s decision to underestimate inflation has cost investors almost $7 billion in returns the past five years, according to ACM Consultores, which is run by former central bank manager Maximiliano Castillo.
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Re: 30 year tips yield @0.247%!!!

Post by jeffyscott » Fri Nov 09, 2012 10:42 pm

Valuethinker wrote: You've really not got your head around TIPS.

They are not 'specialized' any more than US T Bonds are.

They are unique. But what is unique is protection against unexpected inflation- a very rare thing in financial markets.
VIPSX has a real yield of about -1%. That does not seem to offer much protection. If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
press on, regardless - John C. Bogle

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Re: 30 year tips yield @0.247%!!!

Post by epilnk » Sat Nov 10, 2012 12:54 am

scone wrote:I finally sold my VIPSX fund today. I just can't justify having such a specialized bond fund. I'll buy some more BND (Total Bond) and maybe some more Wellesley.
VIPSX has had a negative real yield for a while now. It is up 7.38% YTD.
VBTLX (total bond admiral) is up 4.4%.

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Re: 30 year tips yield @0.247%!!!

Post by richard » Sat Nov 10, 2012 6:34 am

jeffyscott wrote:VIPSX has a real yield of about -1%. That does not seem to offer much protection. If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Short-term nominal treasuries are yielding around 0.1% nominal. If inflation is over 1%, you'd be better off with TIPS at -1% real. Inflation expectations are low, but not that low. See, for example, http://www.clevelandfed.org/research/da ... ectations/

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Re: 30 year tips yield @0.247%!!!

Post by jeffyscott » Sat Nov 10, 2012 9:22 am

richard wrote:
jeffyscott wrote:VIPSX has a real yield of about -1%. That does not seem to offer much protection. If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Short-term nominal treasuries are yielding around 0.1% nominal. If inflation is over 1%, you'd be better off with TIPS at -1% real. Inflation expectations are low, but not that low. See, for example, http://www.clevelandfed.org/research/da ... ectations/

Yes, but the point was regarding the idea that TIPS will protect you from unexpected inflation. If inflation runs up, interest rates on short term nominal treasuries will soon rise. It seems likely that any protection will be short lived and this bit of "insurance" seems to be quite expensive today.

(An additional minor point would be that an individual can get a bit better nominal return from an FDIC insured account or CDs, perhaps 1-2% or so.)
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Re: 30 year tips yield @0.247%!!!

Post by market timer » Sat Nov 10, 2012 9:40 am

jeffyscott wrote:If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Are you familiar with financial repression?

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Re: 30 year tips yield @0.247%!!!

Post by jb1934 » Sat Nov 10, 2012 10:01 am

scone wrote:I finally sold my VIPSX fund today. I just can't justify having such a specialized bond fund. I'll buy some more BND (Total Bond) and maybe some more Wellesley.
Should we be more concerned about total return? Vipsx( inflation protected securities) is
doing as well or better than Vangurards other intermediate bond funds.

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Re: 30 year tips yield @0.247%!!!

Post by archbish99 » Sat Nov 10, 2012 11:27 am

For a bond fund, recent performance is far less relevant than the actual current yield. VAIPX is currently yielding -0.92% real vs. 0.74% nominal for intermediate-term Treasury (1.61% nominal for TBM or 2.12% nominal for ITIG). If inflation runs higher than 1.66%, you're getting at least equal yield. Your insurance trade-off is that you lose the benefit of lower-than-expected inflation in exchange for losing the risk of higher-than-expected inflation.

Current forecast of inflation over the next 5 years is 2.28%, meaning that TIPS will have a better real return than ITT if the forecast is accurate, making your effective insurance premium negative for equivalent credit risk. Holding TIPS rather than ITT probably makes sense. However, if you're willing to lose the protection against unexpected inflation, taking a little more credit risk with TBM or ITIG would yield a higher real return in the expected case.

Fundamentally, how much insurance do you want, and how much credit risk are you willing to assume? The markets are largely priced appropriately.
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Re: 30 year tips yield @0.247%!!!

Post by Jerry_lee » Sat Nov 10, 2012 11:42 am

archbish99 wrote:For a bond fund, recent performance is far less relevant than the actual current yield. VAIPX is currently yielding -0.92% real vs. 0.74% nominal for intermediate-term Treasury (1.61% nominal for TBM or 2.12% nominal for ITIG). If inflation runs higher than 1.66%, you're getting at least equal yield. Your insurance trade-off is that you lose the benefit of lower-than-expected inflation in exchange for losing the risk of higher-than-expected inflation.

Current forecast of inflation over the next 5 years is 2.28%, meaning that TIPS will have a better real return than ITT if the forecast is accurate, making your effective insurance premium negative for equivalent credit risk. Holding TIPS rather than ITT probably makes sense. However, if you're willing to lose the protection against unexpected inflation, taking a little more credit risk with TBM or ITIG would yield a higher real return in the expected case.

Fundamentally, how much insurance do you want, and how much credit risk are you willing to assume? The markets are largely priced appropriately.
This isn't quite apples:apples. The Vanguard TIPS fund is a much longer maturity strategy than the Vanguard Int'd Treasury Fund. We'd need to look at about 75% IT and 25% LT Treasury to match maturities. In doing so, we see the Vanguard reported SEC yield is about +1.1% vs -1.0% yield for Vanguard TIPS. So it seems the +2.1% yield advantage tracks expected inflation closely. And, of course, as we saw in 2008, TIPS can do very poorly during deflation and liquidity crises, so to the extent there is any divergence between nominal/TIPS yields, its probably a risk premium.

By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
Last edited by Jerry_lee on Sat Nov 10, 2012 11:50 am, edited 1 time in total.
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Re: 30 year tips yield @0.247%!!!

Post by archbish99 » Sat Nov 10, 2012 11:45 am

Jerry_lee wrote:
archbish99 wrote:Fundamentally, how much insurance do you want, and how much credit risk are you willing to assume? The markets are largely priced appropriately.
This isn't quite apples:apples. The Vanguard TIPS fund is a much longer maturity strategy than the Vanguard Int'd Treasury Fund. We'd need to look at about 75% IT and 25% LT Treasury to match maturities. In doing so, we see the Vanguard reported SEC yield is about +1.1% vs -1.0% yield for Vanguard TIPS. So it seems the +2.1% yield advantage tracks expected inflation closely. And, of course, as we saw in 2008, TIPS can do very poorly during deflation and liquidity crises, so to the extent there is any divergence between nominal/TIPS yields, its probably a risk premium.
Good point -- this explains the one piece of the puzzle where things didn't appear to be priced appropriately, so thanks for making the world make sense again. :wink:
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Re: 30 year tips yield @0.247%!!!

Post by pascalwager » Sun Nov 11, 2012 10:13 pm

By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
By "short-term" bonds, do you mean the overall 4-year maturity that you recommended recently?
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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Sun Nov 11, 2012 10:25 pm

Jerry_lee wrote: By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
I'm not sure if you are saying that 30 year TIPs are always a completely useless investment or that they are useless at the current real yield of 0.25%.
The trouble is stocks sometimes fail to provide positive real returns even over longish horizons like 10, 15 years etc. Take the 30s for example, or the 70s, or the 2000s. Not long ago 10 year tips were yielding 2%. That's a pretty nice safety play, in case those equities don't deliver.
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Re: 30 year tips yield @0.247%!!!

Post by abuss368 » Sun Nov 11, 2012 11:29 pm

hillman wrote:Mr. Lindauer posted his thoughts on why there are, as you put it, severe limits on I Bond purchases. Don't think you're going to be too happy. . .

http://www.bogleheads.org/forum/viewtopic.php?t=105092
Re: What would it take for I bond fixed rates to climb?
by Mel Lindauer » Mon Nov 05, 2012 7:47 pm

There are lots of signs that the rate may never go about 0%, since it appears that Treasury might want to do away with I Bonds entirely. They may well see these as long-time losers for the government, given almost certain future inflation down the pike.

Witness the lowering of I Bond purchase limits from $30k per SS# to $10K per SS# ($5k paper and $5k online), then temporarily to $5k when they eliminated the paper I Bonds, the elimination of the payroll savings plan, the elimination of the guarantees that came with paper I Bonds, etc.
Do you think that this could spill over to TIPS (I.e. the Treasury eliminates them)?
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Re: 30 year tips yield @0.247%!!!

Post by richard » Mon Nov 12, 2012 8:35 am

jeffyscott wrote:
richard wrote:
jeffyscott wrote:VIPSX has a real yield of about -1%. That does not seem to offer much protection. If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Short-term nominal treasuries are yielding around 0.1% nominal. If inflation is over 1%, you'd be better off with TIPS at -1% real. Inflation expectations are low, but not that low. See, for example, http://www.clevelandfed.org/research/da ... ectations/
Yes, but the point was regarding the idea that TIPS will protect you from unexpected inflation. If inflation runs up, interest rates on short term nominal treasuries will soon rise. It seems likely that any protection will be short lived and this bit of "insurance" seems to be quite expensive today.
Interest rates on short term nominal treasuries may or may not rise. They're yielding well below inflation at the moment.

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Re: 30 year tips yield @0.247%!!!

Post by richard » Mon Nov 12, 2012 9:08 am

market timer wrote:
jeffyscott wrote:If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Are you familiar with financial repression?
Where would you expect rates to be given current unemployment, capacity utilization and GDP growth?

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Re: 30 year tips yield @0.247%!!!

Post by Valuethinker » Mon Nov 12, 2012 9:27 am

richard wrote:
market timer wrote:
jeffyscott wrote:If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Are you familiar with financial repression?
Where would you expect rates to be given current unemployment, capacity utilization and GDP growth?
Pertinently, previous periods of 'financial repression' took place either when:

- there were laws restricting interest and dividend payments -- ie during wartime

OR

- it was much more difficult (or expensive) to invest overseas due to capital controls, institutional inefficiencies etc.

In the current market, if the UK or US government is practicing 'financial repression' then:

- investors can buy the securities of governments not imposing those practices (like Germany for example, the ECB is restricted from buying government bonds)
- investors can buy higher risk corporate bonds and equities that pay higher yields
- investors generally can diversify internationally

The logical response of markets to 'financial repression' if effective, is to sell the currency.

Bond buying by the Fed and the Bank of England probably does have an impact, and I've heard it estimated at 1-1.5% at the 10 year level. So, significant. Probably a bigger impact has simply been to depress the currency (in software, when we cannot fix a bug, it's a 'feature'-- I think this is a very deliberate feature of Quantitative Easing).

Japan of course is proof positive that interest rates can fall to a very low level, and stay there for years, due to secular deflationary factors. Despite soaring government deficits. If the private sector deleveraging is strong enough, nothing can stand in that force's way.

But not the be all and end all of interest rates. Bond market investors are still a huge global force.

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Re: 30 year tips yield @0.247%!!!

Post by Park » Mon Nov 12, 2012 12:44 pm

Jeremy Siegel (I'm probably not helping my case by citing him here) states that the equity risk premium between stocks (earnings yield) and TIPS is generally 2-3%. So the earnings yield should be between 2.25% and 3.25%?

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Re: 30 year tips yield @0.247%!!!

Post by Jerry_lee » Mon Nov 12, 2012 1:27 pm

grok87 wrote:
Jerry_lee wrote: By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
I'm not sure if you are saying that 30 year TIPs are always a completely useless investment or that they are useless at the current real yield of 0.25%.
The trouble is stocks sometimes fail to provide positive real returns even over longish horizons like 10, 15 years etc. Take the 30s for example, or the 70s, or the 2000s. Not long ago 10 year tips were yielding 2%. That's a pretty nice safety play, in case those equities don't deliver.
cheers,
Yes, almost always, esp. today. 30 years is a long time, and there is no way I can guarantee that I won't need the $ before then. If I can, I'm sure not buying TIPS with that $.

Sure, stocks sometimes struggle for periods of 10 years or more. Usually, "stocks" means the LG heavy TSM (which is one-dimensional), and can be offset somewhat by tilting to small and value (see 1965-1981 and 2000-today). And I am not saying be 100% stocks, just that stocks are for the long-run, and to compliment them, you should use shorter duration alternatives that are lower risk (considering most never know for sure when they will need money or exactly how much) so you'll know some money is available at minimal risk no matter what. Holding stocks for long-term and then buying long-term bonds on top of that just doesn't make practical sense to me.

Finally, we have no idea what the inflation or interest rate trajectory will be over the next few decades. But to assume all bonds will earn negative real returns for a few decades seems beyond remote and a belief that can only be attributed to recency bias.
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Re: 30 year tips yield @0.247%!!!

Post by Jerry_lee » Mon Nov 12, 2012 1:37 pm

pascalwager wrote:
By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
By "short-term" bonds, do you mean the overall 4-year maturity that you recommended recently?
PW,

By that you must mean the current ave. maturity of the DFA 5YR Global fund is just south of 4 years. In that case, yes, I'm OK with 4yrs today. But with that fund, maturities are shifted from 0-5 years based on the shape of the yield curve, so its not a sitting duck if rates start to tick up (and the curve flattens). Further, it invests globally ($ hedged) based on which countries have the steepest curves (only about 20% US domiciled issuers today), and we know developed bond markets don't move in lockstep, so higher rates here might be cushioned by lower/unchanged rates overseas, so there is that additional protection.

I don't know as if I'd have someone do that themselves, instead just stick with ST Bond Index or ST Investment Grade, or if they wanted lower credit risk and a bit more TERM: then iShares 3-7YR T-Notes. I'd even be OK with Vanguard Int'd Treasuries and Vanguard TIPS. Anything 20+ years or more in the bond market should be the exclusive property of institutions with infinite time horizons and sophisticated liability matching programs.
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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Tue Nov 13, 2012 8:37 am

Jerry_lee wrote:
grok87 wrote:
Jerry_lee wrote: By the way, put me in the camp (and apparently I am in the significant minority on this one) that thinks a 30yr TIPS is a completely useless investment in almost every case. If one expects stocks (esp. small/value tilted equities) to provide high long-term real returns with considerably short-term volatility and occasional bear markets along the way, then what is needed is a short-term asset for liquidity and rebalancing purposes. While a 30YR TIPS is a risk-free investment if held for 3 decades untouched, the standard deviation of annual or bi-annual returns is on par with equities. So as a short-term risk reducer or liquidity enhancer (what most should be using bonds for), they are terrible. And, sure, you could buy short-term TIPS, which are OK I guess, but short-term nominal bonds already have some inflation sensitive and have very low real return volatility without the negative premium that TIPS have due to the inflation credit. And, with ST nominals, you can add a bit of high-quality credit risk (AAA/AA) which doesn't seriously impair liquidity, and in part earn a higher return relative to treasuries due to not being state tax free (which is a free lunch for those holding bonds in IRAs).
I'm not sure if you are saying that 30 year TIPs are always a completely useless investment or that they are useless at the current real yield of 0.25%.
The trouble is stocks sometimes fail to provide positive real returns even over longish horizons like 10, 15 years etc. Take the 30s for example, or the 70s, or the 2000s. Not long ago 10 year tips were yielding 2%. That's a pretty nice safety play, in case those equities don't deliver.
cheers,
Yes, almost always, esp. today. 30 years is a long time, and there is no way I can guarantee that I won't need the $ before then. If I can, I'm sure not buying TIPS with that $.

Sure, stocks sometimes struggle for periods of 10 years or more. Usually, "stocks" means the LG heavy TSM (which is one-dimensional), and can be offset somewhat by tilting to small and value (see 1965-1981 and 2000-today). And I am not saying be 100% stocks, just that stocks are for the long-run, and to compliment them, you should use shorter duration alternatives that are lower risk (considering most never know for sure when they will need money or exactly how much) so you'll know some money is available at minimal risk no matter what. Holding stocks for long-term and then buying long-term bonds on top of that just doesn't make practical sense to me.

Finally, we have no idea what the inflation or interest rate trajectory will be over the next few decades. But to assume all bonds will earn negative real returns for a few decades seems beyond remote and a belief that can only be attributed to recency bias.
I guess my take is slightly different. It is more of a risk management one, matching retiremen liabilities with assets. 30 years is a long time. But the actuarial tables tell me there is a large probability that either or both of my wife and I will be alive then and we will need to cover basic living expenses. I don't have a defined benefit pension coming. So to my mind it is prudent to buy long term tips and/or Ibonds to match those basic future retirement expenses. I don't like the 0.25% yield. I'm holding what 30 year tips I have and will buy my planned amount at the next february auction, and the june auction, etc. as long as the rate is positive. I am buying all the ibonds i can ($20 k per year). I am also buying 7 year penfed cds which have a cheap put option and hence, to my mind, offer some inflation protection.
cheers,
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Re: 30 year tips yield @0.247%!!!

Post by Browser » Tue Nov 13, 2012 10:38 am

I guess all you can get is what the market will give you. If it's not enough then you can either: (1) increase your risk in hopes you will get a payoff for that, and/or (2) up your savings rate and/or length of employment, and/or (3) lower your income expectations in retirement. Probably option #1 is the least attractive logically but is the one the majority will try because #2 and #3 are just too unpleasant to contemplate for those who look back at the golden age when we all thought we were getting rich without sacrifice because of the credit bubble. Reality bites.
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Re: 30 year tips yield @0.247%!!!

Post by Jerry_lee » Tue Nov 13, 2012 11:58 am

grok87 wrote: I guess my take is slightly different. It is more of a risk management one, matching retiremen liabilities with assets. 30 years is a long time. But the actuarial tables tell me there is a large probability that either or both of my wife and I will be alive then and we will need to cover basic living expenses. I don't have a defined benefit pension coming. So to my mind it is prudent to buy long term tips and/or Ibonds to match those basic future retirement expenses. I don't like the 0.25% yield. I'm holding what 30 year tips I have and will buy my planned amount at the next february auction, and the june auction, etc. as long as the rate is positive. I am buying all the ibonds i can ($20 k per year). I am also buying 7 year penfed cds which have a cheap put option and hence, to my mind, offer some inflation protection.
cheers,
Grok, your's is fine, whatever works is best for each person. While I agree with you we should plan to live long and have everything be more expensive than we've planned, I extend that caution to not knowing when things will be more expensive or when we might need capital.

I have clients (unfortunately) with emergencies all the time: health concerns, helping out family, an opportunity on a vacation home pop up out of know where, etc. And I don't want to be in a position to have to sell long dated securities (both equities and long-term debt) to meet those liabilities. I'm sure everyone fits into this category in some way/shape/form. I don't go so far as to keep fixed income in a money market, and we know that with a 2-3 year maturity that can sometimes (like today) be 4 or 5 years based on shape of yield curves, we might take a small hit on FI sales if rates are rising and equities are tanking (if equities were up, we'd just sell stocks to meet cash-flow demands as the rebalancing schedule calls for). But, within reason, a 3-5% hit is a lot more palatable than a 10% to 20% hit (or more).

In my experience, spending doesn't track inflation year to year. Investors go a few years with about the same needs, that drifts up over time, might spike in a year or two with expenditures, trips, outsized gifts, and tends to tail off later in life as activity and the bucket list begin to dwindle. So this calls for sufficient funds in a short-term vehicle with reasonable returns and low risk that can be called upon unexpectedly. But we aren't kidding ourselves, we do expect to be rewarded handsomely for holding equities and tilting to small/value over time with a high degree of confidence (but no guarantees).

That's just how I see it.

BTW, implicit in my assumptions are that most of the returns in the bond market over an entire interest rate cycle can be generated from a 5yr and under portfolio that shifts the average maturity in response to yield curves: short/cash during flat or inverted markets, out 4/5 years during upwardly sloping periods. If we simulate a 1-5yr treasury portfolio that does just that over the longest period available (1964-2011), we find the following returns bear that out:

1mo = +5.3%
1yr = +6.3%
1-5yr Variable Maturity = +7.5%
5yr = +7.3%
20yr = +7.8%

And with IRs trending down over this period, it is probably biased in favor of LT bonds somewhat.
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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Tue Nov 13, 2012 10:43 pm

Jerry_lee wrote:
grok87 wrote: I guess my take is slightly different. It is more of a risk management one, matching retiremen liabilities with assets. 30 years is a long time. But the actuarial tables tell me there is a large probability that either or both of my wife and I will be alive then and we will need to cover basic living expenses. I don't have a defined benefit pension coming. So to my mind it is prudent to buy long term tips and/or Ibonds to match those basic future retirement expenses. I don't like the 0.25% yield. I'm holding what 30 year tips I have and will buy my planned amount at the next february auction, and the june auction, etc. as long as the rate is positive. I am buying all the ibonds i can ($20 k per year). I am also buying 7 year penfed cds which have a cheap put option and hence, to my mind, offer some inflation protection.
cheers,
Grok, your's is fine, whatever works is best for each person. While I agree with you we should plan to live long and have everything be more expensive than we've planned, I extend that caution to not knowing when things will be more expensive or when we might need capital.

I have clients (unfortunately) with emergencies all the time: health concerns, helping out family, an opportunity on a vacation home pop up out of know where, etc. And I don't want to be in a position to have to sell long dated securities (both equities and long-term debt) to meet those liabilities. I'm sure everyone fits into this category in some way/shape/form. I don't go so far as to keep fixed income in a money market, and we know that with a 2-3 year maturity that can sometimes (like today) be 4 or 5 years based on shape of yield curves, we might take a small hit on FI sales if rates are rising and equities are tanking (if equities were up, we'd just sell stocks to meet cash-flow demands as the rebalancing schedule calls for). But, within reason, a 3-5% hit is a lot more palatable than a 10% to 20% hit (or more).

In my experience, spending doesn't track inflation year to year. Investors go a few years with about the same needs, that drifts up over time, might spike in a year or two with expenditures, trips, outsized gifts, and tends to tail off later in life as activity and the bucket list begin to dwindle. So this calls for sufficient funds in a short-term vehicle with reasonable returns and low risk that can be called upon unexpectedly. But we aren't kidding ourselves, we do expect to be rewarded handsomely for holding equities and tilting to small/value over time with a high degree of confidence (but no guarantees).

That's just how I see it.

BTW, implicit in my assumptions are that most of the returns in the bond market over an entire interest rate cycle can be generated from a 5yr and under portfolio that shifts the average maturity in response to yield curves: short/cash during flat or inverted markets, out 4/5 years during upwardly sloping periods. If we simulate a 1-5yr treasury portfolio that does just that over the longest period available (1964-2011), we find the following returns bear that out:

1mo = +5.3%
1yr = +6.3%
1-5yr Variable Maturity = +7.5%
5yr = +7.3%
20yr = +7.8%

And with IRs trending down over this period, it is probably biased in favor of LT bonds somewhat.
Jerry,
thanks- what's the criteria for the 1-5 yr variable maturity strategy- i.e. when is the yield curve upwardly sloping enough to go out 4/5 years?
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Re: 30 year tips yield @0.247%!!!

Post by grok87 » Thu Nov 15, 2012 7:40 pm

grok87 wrote:
Jerry_lee wrote:
grok87 wrote: I guess my take is slightly different. It is more of a risk management one, matching retiremen liabilities with assets. 30 years is a long time. But the actuarial tables tell me there is a large probability that either or both of my wife and I will be alive then and we will need to cover basic living expenses. I don't have a defined benefit pension coming. So to my mind it is prudent to buy long term tips and/or Ibonds to match those basic future retirement expenses. I don't like the 0.25% yield. I'm holding what 30 year tips I have and will buy my planned amount at the next february auction, and the june auction, etc. as long as the rate is positive. I am buying all the ibonds i can ($20 k per year). I am also buying 7 year penfed cds which have a cheap put option and hence, to my mind, offer some inflation protection.
cheers,
Grok, your's is fine, whatever works is best for each person. While I agree with you we should plan to live long and have everything be more expensive than we've planned, I extend that caution to not knowing when things will be more expensive or when we might need capital.

I have clients (unfortunately) with emergencies all the time: health concerns, helping out family, an opportunity on a vacation home pop up out of know where, etc. And I don't want to be in a position to have to sell long dated securities (both equities and long-term debt) to meet those liabilities. I'm sure everyone fits into this category in some way/shape/form. I don't go so far as to keep fixed income in a money market, and we know that with a 2-3 year maturity that can sometimes (like today) be 4 or 5 years based on shape of yield curves, we might take a small hit on FI sales if rates are rising and equities are tanking (if equities were up, we'd just sell stocks to meet cash-flow demands as the rebalancing schedule calls for). But, within reason, a 3-5% hit is a lot more palatable than a 10% to 20% hit (or more).

In my experience, spending doesn't track inflation year to year. Investors go a few years with about the same needs, that drifts up over time, might spike in a year or two with expenditures, trips, outsized gifts, and tends to tail off later in life as activity and the bucket list begin to dwindle. So this calls for sufficient funds in a short-term vehicle with reasonable returns and low risk that can be called upon unexpectedly. But we aren't kidding ourselves, we do expect to be rewarded handsomely for holding equities and tilting to small/value over time with a high degree of confidence (but no guarantees).

That's just how I see it.

BTW, implicit in my assumptions are that most of the returns in the bond market over an entire interest rate cycle can be generated from a 5yr and under portfolio that shifts the average maturity in response to yield curves: short/cash during flat or inverted markets, out 4/5 years during upwardly sloping periods. If we simulate a 1-5yr treasury portfolio that does just that over the longest period available (1964-2011), we find the following returns bear that out:

1mo = +5.3%
1yr = +6.3%
1-5yr Variable Maturity = +7.5%
5yr = +7.3%
20yr = +7.8%

And with IRs trending down over this period, it is probably biased in favor of LT bonds somewhat.
Jerry,
thanks- what's the criteria for the 1-5 yr variable maturity strategy- i.e. when is the yield curve upwardly sloping enough to go out 4/5 years?
Buuuuuuuuuuuuuhmp!
So is it 10 bps a year steepness? 20 bps?
inquiring minds want to know...
:)
cheers,
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Re: 30 year tips yield @0.247%!!!

Post by grayfox » Thu Nov 15, 2012 8:32 pm

richard wrote:
market timer wrote:
jeffyscott wrote:If inflation appears, short term nominal rates will probably be increasing and exceed that -1% real.
Are you familiar with financial repression?
Where would you expect rates to be given current unemployment, capacity utilization and GDP growth?
Interest rates are determined by supply and demand in the open market.
I think what you are saying is that low employment rate, low capacity utilization would reduce the demand for money.
So the price of money, i.e., interest rates would fall.

We can look at the demand for money, the Federal Reserve keeps track of the amount of debt.

I recall looking at this a few months ago, and determined that the amount of almost every kind of debt has gone down. This included corporate debt, mortgages, student loans, credit card debt, auto loans, you name it, everything...
...except for Treasury Debt which has skyrocketed.

Image

So the DEMAND for money by the Treasury is way UP, which should have driven Treasury rates UP.

But the SUPPLY of money has gone UP even faster

Image

Driving Treasury rates DOWN, swamping the effect of the rising demand. Recall Helicopter speech.

Interest rates are low because the supply of money expanded at unprecendeted rate.
Today 10-year 1.59%. Financial Repression in action.

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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 10:23 am

grok87 wrote: Buuuuuuuuuuuuuhmp!
So is it 10 bps a year steepness? 20 bps?
inquiring minds want to know...
:)
cheers,
18.365 bps per year! Now you know. :happy But for a more informed opinion:
Jerry_lee wrote:If we look at the 1964-2011 period, we cannot be sure there is even a term premium beyond 1yr. The t-stat on the premium of 5yr notes above 1yr notes is only 1.5, and 1.2 for 20yr bonds above 1yr notes. Sure, the returns are higher, but with much higher volatility, decreasing our confidence in the outcome (combined with a downward trend in interest rates over the total period). However, if we simulate a 1-5yr "variable maturity" portfolio where, each year (based on Fed Reserve 1/5yr note yields), we hold the 5yr note when the yield curve is upwardly sloped (> 0.2%/year from 1yr-->5yr) and the 1yr note when the yield curve is flat/inverted (< 0.2%/year from 1yr-->5yr), we see the following results:
http://www.bogleheads.org/forum/viewtop ... 0#p1498390

I recall a Swedroe "guide line" for going out on the yield curve and IIRC that number was also 20 bps per year.

My current philosophy is to roll my existing TIPS into nominal Treasuries with a 28 day duration. But when the "fiscal cliff" has passed I want to start moving out on the curve with actual TIPS and so I am very interested in this idea.
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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 11:00 am

FWIW The 5 yr - 1 yr average spread of the constant maturity data for the last ten years.

Image

https://research.stlouisfed.org/fred2/g ... egory_id=0#

(Annual Spread multiplied by ten for emphasis.)
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Re: 30 year tips yield @0.247%!!!

Post by richard » Fri Nov 16, 2012 11:07 am

grayfox wrote:But the SUPPLY of money has gone UP even faster

Image

Driving Treasury rates DOWN, swamping the effect of the rising demand. Recall Helicopter speech.

Interest rates are low because the supply of money expanded at unprecendeted rate.
You gave a graph of the monetary base, which is not quite the same as the money supply for these purposes. M2 or M3 haven't experienced anything near the expansion from your graph. Consider that velocity has plummeted

Image

Quantity of money theories usually predict high inflation from an unprecedented increase in money. We're not seeing high inflation.

How does one link directly to FRED, rather than saving the image and linking to imageshack or the like?

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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 11:26 am

richard wrote:How does one link directly to FRED, rather than saving the image and linking to imageshack or the like?
Right click the "share email" icon and copy the shortcut.
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Re: 30 year tips yield @0.247%!!!

Post by richard » Fri Nov 16, 2012 11:43 am

Doc wrote:
richard wrote:How does one link directly to FRED, rather than saving the image and linking to imageshack or the like?
Right click the "share email" icon and copy the shortcut.
From https://research.stlouisfed.org/fred2/graph/?id=M2 I right click on the email icon in the left column (SHARE followed by icons for twitter, facebook and email), and I get https://research.stlouisfed.org/fred2/series/M2# which doesn't help

If I first click on Edit Graph below the chart, it brings me to https://research.stlouisfed.org/fred2/graph/?id=M2 which has the SHARE links in the upper right. Right clicking on that gives me https://research.stlouisfed.org/fred2/graph/?id=M2#

What am I doing wrong?

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Re: 30 year tips yield @0.247%!!!

Post by Jerry_lee » Fri Nov 16, 2012 12:23 pm

Doc wrote:
grok87 wrote: Buuuuuuuuuuuuuhmp!
So is it 10 bps a year steepness? 20 bps?
inquiring minds want to know...
:)
cheers,
18.365 bps per year! Now you know. :happy But for a more informed opinion:
Jerry_lee wrote:If we look at the 1964-2011 period, we cannot be sure there is even a term premium beyond 1yr. The t-stat on the premium of 5yr notes above 1yr notes is only 1.5, and 1.2 for 20yr bonds above 1yr notes. Sure, the returns are higher, but with much higher volatility, decreasing our confidence in the outcome (combined with a downward trend in interest rates over the total period). However, if we simulate a 1-5yr "variable maturity" portfolio where, each year (based on Fed Reserve 1/5yr note yields), we hold the 5yr note when the yield curve is upwardly sloped (> 0.2%/year from 1yr-->5yr) and the 1yr note when the yield curve is flat/inverted (< 0.2%/year from 1yr-->5yr), we see the following results:
http://www.bogleheads.org/forum/viewtop ... 0#p1498390

I recall a Swedroe "guide line" for going out on the yield curve and IIRC that number was also 20 bps per year.

My current philosophy is to roll my existing TIPS into nominal Treasuries with a 28 day duration. But when the "fiscal cliff" has passed I want to start moving out on the curve with actual TIPS and so I am very interested in this idea.
Doc,

Thanks for linking this in response to Grok's question. I'm bad about remember what threads I've posted on/which I haven't -- sorry. Honestly, I've read my own posts before, not realizing they were mine, thinking "this person really gets it...who is this?" :)

As just a back of the envelope calculation, as I did in the thread above, 20bps/year is a good metric. In the DFA 5YR Global fund, instead, they calculate a daily yield curve matrix across global (hedged) yield curves and find the buy/sell combinations with the highest risk adjusted return (see page 6 of this research note http://www.ifa.com/Media/Images/PDF%20f ... Income.pdf). When opportunities have shifted dramatically from current allocations, they update the portfolio -- as a look at the last 15 years of average maturities finds it as far out as 5 years and as short as 12 months.

So more specifically, instead of simply buying a 1mo bill, 1yr bond, or 5yr bond and holding it for 12 months as my example above shows, they might by a 3.5yr bond in the US, a 1yr bond in UK, and a 5yr bond in AUS, with the plan to hold bond 1 for 1month and sell, hold bond 2 for 3 months and sell, and bond 3 for a year and sell (and re-buy the same combos again in 1/3/12 months unless the yield curve changes).

I'm not for a minute saying this approach is earthshattering (not nearly as important, as say, tilting to small and value), but as I compare DFGBX to the Citigroup 1-5yr (hedged) Global bond index, I see it's added almost 0.8% a year net of fees since 1990 (which for much of the 1990s were about double the expense ratio today). And while 0.8% might not seem like a lot, if we go back to 1964, we find through 2011, a portfolio of 1-5yr laddered t-notes (think Vanguard ST Treasury Fund) only trailed LT 20YR Treasuries by 1% a year. So with an expected return of LT Bonds with interest rate/inflation risk of 2-3 years, that is a very good tradeoff. Even if we compare DFGBX to 5YR T-Notes, we find the former only trailed by 0.3% per year since 1990 -- this despite the fact that interest rates have collapsed and being as long as possible has worked almost every year for 2 decades, and 5YR T-Notes average is the longest possible maturity for DFGBX.

I've had people comment and PM me on the fact they do something similar with ST Bond Index and Int'd Bond Index, and I say: cool! About the same thing -- just based on the premises that:

a) bond funds are ideal due to broad diversification and daily liquidity
b) mostly AAA/AA and government bonds are best for liquidity and dampening risk
c) when yield curves are steep, you'd expect a premium for holding slightly longer term bonds so going out 4-5 years seems reasonable; when yield curves are flat, there isn't much expected premium in bonds, so stay short and defensive
d) your portfolio returns are primarily a function of equity % and small/value allocation
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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 1:04 pm

Jerry_lee wrote:Doc,

Thanks for linking this in response to Grok's question. I'm bad about remember what threads I've posted on/which I haven't -- sorry. Honestly, I've read my own posts before, not realizing they were mine, thinking "this person really gets it...who is this?" :)
Well thanks for the thanks but to be honest I was actually Googling Swedroe's opinion and came up with yours first.
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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 1:23 pm

richard wrote:
Doc wrote:
richard wrote:How does one link directly to FRED, rather than saving the image and linking to imageshack or the like?
Right click the "share email" icon and copy the shortcut.
From https://research.stlouisfed.org/fred2/graph/?id=M2 I right click on the email icon in the left column (SHARE followed by icons for twitter, facebook and email), and I get https://research.stlouisfed.org/fred2/series/M2# which doesn't help

If I first click on Edit Graph below the chart, it brings me to https://research.stlouisfed.org/fred2/graph/?id=M2 which has the SHARE links in the upper right. Right clicking on that gives me https://research.stlouisfed.org/fred2/graph/?id=M2#

What am I doing wrong?
The first time I copied the link I was signed in and in "edit" mode. But I can now get back to the page without signing in but it is in edit mode.

Here's the link again for my copied shortcut: https://research.stlouisfed.org/fred2/g ... egory_id=0#

OK what you appear to be doing is getting a graph for a "popular series".

From the St Louis Fed's home page https://research.stlouisfed.org/
On the "Fred Economic Data" tab click "categories" under the "FRED" column and go from there. https://research.stlouisfed.org/fred2/categories
(Your link is from the "Popular Series" column.)

I find Fred's "instructions" completely comprehensible to anyone who speaks bureaucratize fluently. :annoyed
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Re: 30 year tips yield @0.247%!!!

Post by richard » Fri Nov 16, 2012 1:40 pm

I fear my question was imprecise. I was looking for the link to the graph, so that I can embed the graph as an image in a post to this forum. That requires a link ending in png (or jpg or another image format).

To embed a graph image, I now use windows' snipping tool, save the image to my computer, upload to imageshack, then use the link they generate.

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Re: 30 year tips yield @0.247%!!!

Post by Doc » Fri Nov 16, 2012 1:54 pm

richard wrote:I fear my question was imprecise. I was looking for the link to the graph, so that I can embed the graph as an image in a post to this forum. That requires a link ending in png (or jpg or another image format).

To embed a graph image, I now use windows' snipping tool, save the image to my computer, upload to imageshack, then use the link they generate.
"Formating Excel data in posts, & how to attach graphics" http://www.bogleheads.org/forum/viewtop ... =2&t=37848
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Re: 30 year tips yield @0.247%!!!

Post by mas » Fri Nov 16, 2012 3:09 pm

richard wrote:How does one link directly to FRED, rather than saving the image and linking to imageshack or the like?
If you use Firefox, right click on the image and then choose "Copy Image Location"

You end up with something like this:
https://research.stlouisfed.org/fred2/g ... 2012-11-16

Then inside the "img" tag:
Image

In Internet Explorer, you have to do a bit more work.
Right click the image, choose properties, then manually highlight the "address (URL)", right click again and choose copy.

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Re: 30 year tips yield @0.247%!!!

Post by scone » Fri Nov 16, 2012 3:52 pm

epilnk wrote:
scone wrote:I finally sold my VIPSX fund today. I just can't justify having such a specialized bond fund. I'll buy some more BND (Total Bond) and maybe some more Wellesley.
VIPSX has had a negative real yield for a while now. It is up 7.38% YTD.
VBTLX (total bond admiral) is up 4.4%.
I was aware of that. But I'd rather have the diversification. I'm not holding a bond fund just to see the YTD rise, especially if it looks like speculation. A hot fund can cool off very fast, and volatility is not what I want in my bonds.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

grok87
Posts: 8454
Joined: Tue Feb 27, 2007 9:00 pm

Re: 30 year tips yield @0.247%!!!

Post by grok87 » Fri Nov 16, 2012 8:23 pm

Doc wrote:
grok87 wrote: Buuuuuuuuuuuuuhmp!
So is it 10 bps a year steepness? 20 bps?
inquiring minds want to know...
:)
cheers,
18.365 bps per year! Now you know. :happy But for a more informed opinion:
Jerry_lee wrote:If we look at the 1964-2011 period, we cannot be sure there is even a term premium beyond 1yr. The t-stat on the premium of 5yr notes above 1yr notes is only 1.5, and 1.2 for 20yr bonds above 1yr notes. Sure, the returns are higher, but with much higher volatility, decreasing our confidence in the outcome (combined with a downward trend in interest rates over the total period). However, if we simulate a 1-5yr "variable maturity" portfolio where, each year (based on Fed Reserve 1/5yr note yields), we hold the 5yr note when the yield curve is upwardly sloped (> 0.2%/year from 1yr-->5yr) and the 1yr note when the yield curve is flat/inverted (< 0.2%/year from 1yr-->5yr), we see the following results:
http://www.bogleheads.org/forum/viewtop ... 0#p1498390

I recall a Swedroe "guide line" for going out on the yield curve and IIRC that number was also 20 bps per year.

My current philosophy is to roll my existing TIPS into nominal Treasuries with a 28 day duration. But when the "fiscal cliff" has passed I want to start moving out on the curve with actual TIPS and so I am very interested in this idea.
Thanks Doc.
Keep calm and Boglehead on. KCBO.

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