30 yr TIPS Auction Feb 16: real yield 1.1%?

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grok87
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30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Sat Feb 04, 2017 7:00 am

There will be a 30 year TIPs auction on Feb 16th. Current secondary market yield is 0.99% and I'm hoping we might get to 1.1% at the auction.
The auction will be announced this thursday Feb 9th at which point you can begin placing your orders.

Anyone buying?

I will be in for my usual thrice yearly amount plus perhaps a bit of extra funds that i am redeploying from CDs (assuming the transfer goes through in time).

cheers,
grok
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

garlandwhizzer
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by garlandwhizzer » Sat Feb 04, 2017 11:42 am

Guaranteed 1% real in this fixed income market isn't bad. The problem however is that a 30 year instrument maximizes duration/interest rate risk. If you need the money before 30 years and you're forced to sell your 30 year TIPS, you may suffer considerable principal loss if rates are higher and especially if they are in excess of inflation rates at the time of sale. I believe that historically longer term government bonds have yielded about 2% more than the inflation rate at the time of issuance. 1% real is halfway to that normalization rate. Whether rates will fully normalize in the future is unknown as is the future rate of inflation. If they do normalize to 2% real, a better opportunity might present itself down the road. I am 70 and don't anticipate being around in 30 years so I am avoiding all long term bonds at present.

Garland Whizzer

TigerNest
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by TigerNest » Sat Feb 04, 2017 11:52 am

Yeesh, 0.99% for 30 years. I'm reminded of this xkcd:

Image

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FIREchief
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by FIREchief » Sat Feb 04, 2017 12:35 pm

I personally prefer a ten year @ 0.44% (or even a 5 year @ 0.02%) over a 30 year @ 1.01%. I don't buy TIPS for investment return. I buy them for preservation of purchasing power.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Sat Feb 04, 2017 12:50 pm

TigerNest wrote:Yeesh, 0.99% for 30 years. I'm reminded of this xkcd:

Image

great comic. i love xkcd. i'd be interested if there was somehow a link to all the finance xkcd comics or something like that.

So point taken, but....I actually think this is an argument against nominal bonds but FOR Tips..

Let's pretend we're talking about zero coupon bonds (which is the assumption of the xkcd article). if you buy a 10 year nominal zero coupon bond at 2% Interest, then as Randall says after 10 years you will have $1,219/ If you buy a hypothetical 10 year zero coupon TIPS at 0% real yield, then after 10 years:

1) you are guaranteed to have at least $1,000
2) if the inflation of 1971-1980 repeats you would have $2,169.

So to sum up, with rates so low, even for a nominal bond investor aren't you better off rolling the dice on TIPS? You have very little to lose- i.e. after 10 years you might end up with $1,000 instead of Randall's $1,219. But you could end up with $2,169 or more!

:)

cheers,
grok
Last edited by grok87 on Sat Feb 04, 2017 1:05 pm, edited 1 time in total.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Sat Feb 04, 2017 12:54 pm

garlandwhizzer wrote:Guaranteed 1% real in this fixed income market isn't bad. The problem however is that a 30 year instrument maximizes duration/interest rate risk. If you need the money before 30 years and you're forced to sell your 30 year TIPS, you may suffer considerable principal loss if rates are higher and especially if they are in excess of inflation rates at the time of sale. I believe that historically longer term government bonds have yielded about 2% more than the inflation rate at the time of issuance. 1% real is halfway to that normalization rate. Whether rates will fully normalize in the future is unknown as is the future rate of inflation. If they do normalize to 2% real, a better opportunity might present itself down the road. I am 70 and don't anticipate being around in 30 years so I am avoiding all long term bonds at present.

Garland Whizzer

Fair enough. Personally i would recommend, for most people, buying 30 year tips up until age 65.

Re whether long term real rates will revert back to 2%, it's an interesting question. I think part of the reason for the historical 2% is that GDP growth was higher back then (as was population growth, etc). So it's not clear that 2% is a reasonable expectation going forward...

cheers,
grok
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Sat Feb 04, 2017 12:56 pm

FIREchief wrote:I personally prefer a ten year @ 0.44% (or even a 5 year @ 0.02%) over a 30 year @ 1.01%. I don't buy TIPS for investment return. I buy them for preservation of purchasing power.

personally i like the 5 years and the 30 years. The 30 years for long term liability matching. The 5 years because for that short term horizon i think there's a decent chance the deflation put might pay off.

if you are buying 3 consecutive 10 years as a substitute for 30 years as part of LMP you may want to do that math on what the real yield on the second and third 10 years needs to be to break even...
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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FIREchief
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by FIREchief » Sat Feb 04, 2017 1:42 pm

grok87 wrote:
FIREchief wrote:I personally prefer a ten year @ 0.44% (or even a 5 year @ 0.02%) over a 30 year @ 1.01%. I don't buy TIPS for investment return. I buy them for preservation of purchasing power.

personally i like the 5 years and the 30 years. The 30 years for long term liability matching. The 5 years because for that short term horizon i think there's a decent chance the deflation put might pay off.

if you are buying 3 consecutive 10 years as a substitute for 30 years as part of LMP you may want to do that math on what the real yield on the second and third 10 years needs to be to break even...


It looks like it would take a 1.3% real return on the second and third 10 year TIPS in the scenario you've described. We've seen those levels as recently as 2010. If we do ever clear the air of all of this "helicopter money," maybe we'll see those types of real returns again. 8-)

That said, again, I don't buy TIPS for investment return. I buy them for preservation of purchasing power. If I want or need more return, I'll shift a bit more into equities.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Scotttheking
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Scotttheking » Sat Feb 04, 2017 7:39 pm

Putting in usual annual buy.

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Tue Feb 07, 2017 3:05 pm

Secondary yield is now down to 0.95% so i'm hoping for 1.05% now at auction. You can start placing your orders on thursday.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

Lerner
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Lerner » Wed Feb 08, 2017 10:52 am

Scotttheking wrote:Putting in usual annual buy.


I'm also planning to make my regular buy.

Could Scotttheking please elaborate on your schedule for purchasing TIPS?

spin_echo
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by spin_echo » Wed Feb 08, 2017 8:21 pm

Grok - would you buy if you only could buy in your taxable? I vaguely remember Nisperius saying that the taxes became complicated. I am in the 33% tax bracket. Thanks ....

Scotttheking
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Scotttheking » Wed Feb 08, 2017 9:00 pm

Lerner wrote:
Scotttheking wrote:Putting in usual annual buy.


I'm also planning to make my regular buy.

Could Scotttheking please elaborate on your schedule for purchasing TIPS?


Annual real dollar amount pegged to the 2010 TIPS inflation factor, bought each February.

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Wed Feb 08, 2017 9:30 pm

spin_echo wrote:Grok - would you buy if you only could buy in your taxable? I vaguely remember Nisperius saying that the taxes became complicated. I am in the 33% tax bracket. Thanks ....

i probably wouldn't buy 30 year tips in taxable. maybe the 5 years.

the main point of 30 year tips, for me, is to fund retirement liabilities- to protect against a stagflation scenario. But if there is high inflation, then i think you really want those bonds to be tax sheltered.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

spin_echo
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by spin_echo » Wed Feb 08, 2017 9:48 pm

Thanks Grok - I have a 403b but can only buy mutual funds within it

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Wed Feb 08, 2017 10:09 pm

spin_echo wrote:Thanks Grok - I have a 403b but can only buy mutual funds within it

what about ibonds?

can you buy ETFs in your 403B? if you can, then there is LTPZ which holds long term tips.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

Scotttheking
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Scotttheking » Thu Feb 09, 2017 6:44 pm

Fidelity is estimating a 0.875 coupon.

Corrected a mistake to match with #Cruncher's post below.
Last edited by Scotttheking on Thu Feb 09, 2017 11:07 pm, edited 2 times in total.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by #Cruncher » Thu Feb 09, 2017 9:53 pm

Today the auction was officially announced here. $7 billion will be offered next Thursday February 16th. Since this is an original auction, we don't know the coupon yet. The following table shows what it would be for a range of possible yields. The table also shows the corresponding Price and the Adjusted cost, Accrued interest, and Total outlay for a $10,000 face value purchase.

Code: Select all

Yield               0.700%    0.800%    0.900%     1.000%    1.100%    1.200%    1.300%
Coupon              0.625%    0.750%    0.875%     1.000%    1.000%    1.125%    1.250% [1]
Price              97.976%   98.670%   99.345%   100.000%   97.453%   98.117%   98.762% [2]
Adjusted cost     9,799.06  9,868.49  9,935.95  10,001.49  9,746.78  9,813.17  9,877.71 [3]
Accrued interest      2.24      2.69      3.14       3.59      3.59      4.04      4.49 [4]
Total outlay      9,801.30  9,871.19  9,939.10  10,005.08  9,750.37  9,817.21  9,882.20

  1. The Treasury sets the coupon to the nearest 1/8% point less than or equal to the yield. Can be computed with the Excel INT function. For example:

    Code: Select all

    0.625% =INT(0.7% * 800) / 800
  2. Using the Excel PRICE function. For example:

    Code: Select all

    97.976% =PRICE(DATE(2017, 2, 28), DATE(2047, 2, 15), 0.625%, 0.7%, 100, 2, 1) / 100
  3. Reflects the 1.00015 index ratio on 2/28/2017.
  4. Reflects 13 days 2/15/2017 to the 2/28/2017 settlement date out of the 181 days 2/15/2017 to the 8/15/2017 first interest payment date.

Angst
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Angst » Tue Feb 14, 2017 1:30 pm

grok87 wrote:Secondary yield is now down to 0.95% so i'm hoping for 1.05% now at auction...

Hi grok,
I too am in for a 1/3 of my annual purchase. Rates appear to be climbing back up a bit today, which is promising. Where exactly were you looking last week for that 0.95% secondary yield?
Angie

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Tue Feb 14, 2017 1:45 pm

Angst wrote:
grok87 wrote:Secondary yield is now down to 0.95% so i'm hoping for 1.05% now at auction...

Hi grok,
I too am in for a 1/3 of my annual purchase. Rates appear to be climbing back up a bit today, which is promising. Where exactly were you looking last week for that 0.95% secondary yield?
Angie

Bloomberg
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Angst » Tue Feb 14, 2017 2:22 pm

grok87 wrote:
Angst wrote:
grok87 wrote:Secondary yield is now down to 0.95% so i'm hoping for 1.05% now at auction...

Hi grok,
I too am in for a 1/3 of my annual purchase. Rates appear to be climbing back up a bit today, which is promising. Where exactly were you looking last week for that 0.95% secondary yield?
Angie

Bloomberg

Ok. Humor me here, but I can take things very literally, and there are no outstanding TIPS maturing in Feb 2047, so you're just talking about the 30-year TIPS rate on Bloomberg's US Rates & Bonds page: https://www.bloomberg.com/markets/rates-bonds/government-bonds/us (Currently at 0.94%) Correct? I.e. there is no secondary market yet, as there will be come June 2017? And Bloomberg can't access all the current bids data, can they? So is this number (0.95%) Bloomberg's mid-day version of Treasury's interpolated R-CMT rate which actually was 0.98% at end of day last Tue, Feb 7th?

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by #Cruncher » Tue Feb 14, 2017 3:05 pm

Angst in previous post wrote:... so you're [grok87] just talking about the 30-year TIPS rate on: Bloomberg's US Rates & Bonds page ... Correct? ... is this number ... Bloomberg's mid-day version of Treasury's interpolated R-CMT [Constant Maturity Treasury] rate ...?
I don't know what Grok means by his terse "Bloomberg". (He may be referring to a subscriber-only web page with a when-issued quote.) But as far as the Bloomberg page you refer to, Angst, it does not show a CMT rate. It is for a specific TIPS, the 1% coupon maturing February 2046.

I think the rate of the 2046 TIPS is a good predictor of what the rate will be on the 2047 TIPS to be auctioned. I say this because the yields of the five most recent 30-year TIPS maturing 2042 - 2046 fall within a narrow range -- 0.902% to 0.908% yesterday as shown by WSJ TIPS Quotes 2/13/2017.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Angst » Tue Feb 14, 2017 4:04 pm

#Cruncher wrote:... But as far as the Bloomberg page you refer to, Angst, it does not show a CMT rate. It is for a specific TIPS, the 1% coupon maturing February 2046.

I think the rate of the 2046 TIPS is a good predictor of what the rate will be on the 2047 TIPS to be auctioned. I say this because the yields of the five most recent 30-year TIPS maturing 2042 - 2046 fall within a narrow range -- 0.902% to 0.908% yesterday as shown by WSJ TIPS Quotes 2/13/2017.

Thanks #Cruncher, that's helpful. So at this point in the calendar, Bloomberg's page is showing the secondary market yield on last year's 30-yr issue. I've saved the WSJ link (which I should have done long ago, as it's been cited many times); it adds some perspective to that 29-yr TIPS rate. Which have you found to be the best predictor for the February new issue: last year's 30-yr TIPS secondary market yield or the real CMT rate? Of course I assume that in June and October you go by the previous February issue in the secondary market.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Tue Feb 14, 2017 5:28 pm

Agree. At this point i'm hoping for 0.95%, even 1% seems well out of reach.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grayfox » Wed Feb 15, 2017 12:57 pm

We have had very low inflation for a while

2016 1.26%
2015 0.12%
2014 1.62%
2013 1.47%
2012 2.07%
2011 3.16%
2010 1.64%
2009 -0.34%
2008 3.85%
2007 2.85%
2006 3.24%
2005 3.39%
2004 2.68%
2003 2.27%
2002 1.59%
2001 2.83%
2000 3.38%


But it sounds to me that people in the know are expecting higher inflation. Maybe it will go back up to 3+%.
I'm wondering if that's why insurance companies have pulled Inflation-Indexed Annuities off the shelf. Either too much uncertainty to price it, or the price would be so high that no-one would buy it. It sounds like a good time to get some TIPS before the price goes up.

I am loading up the station wagon. :moneybag
Gott mit uns.

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Wed Feb 15, 2017 3:34 pm

grayfox wrote:We have had very low inflation for a while

2016 1.26%
2015 0.12%
2014 1.62%
2013 1.47%
2012 2.07%
2011 3.16%
2010 1.64%
2009 -0.34%
2008 3.85%
2007 2.85%
2006 3.24%
2005 3.39%
2004 2.68%
2003 2.27%
2002 1.59%
2001 2.83%
2000 3.38%


But it sounds to me that people in the know are expecting higher inflation. Maybe it will go back up to 3+%.
I'm wondering if that's why insurance companies have pulled Inflation-Indexed Annuities off the shelf. Either too much uncertainty to price it, or the price would be so high that no-one would buy it. It sounds like a good time to get some TIPS before the price goes up.

I am loading up the station wagon. :moneybag

Today's inflation number, headline cpi, was 2.5%!

Some may say, but that's a short term thing driven by rising energy prices. Alas no, core cpi was 2.3%, also a higher number.
Latest break evens are 2.04, 2.06 and 2.19 for the 5, 10 and 30 year.

So the pro on the 30 year tip is a higher real yield than before but the con is higher breAkeven.
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by FIREchief » Wed Feb 15, 2017 7:40 pm

grayfox wrote:
I am loading up the station wagon. :moneybag


My station wagon (it's the "LMP" model) is approaching 50% full! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

grok87
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Thu Feb 16, 2017 10:32 am

Uggh.
Secondary yield for 29 year tip now at 0.88%.
Looks like inflation protection is in demand after yesterdays CPI numbers.
I'm guessing the auction yield today will be below 0.9%

Uggh
I'm leaving my order as is though...
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Thu Feb 16, 2017 1:26 pm

Results are in: 0.923%.

This is a better outcome than i was hoping for. Looks like the auction "tailed" significantly by say 4 bp. That means that the Auction yield was 4 bp higher than the secondary market yield of the on-the-run issue (0.88%) in the run up to the auction.

Interesting. It means demand for tips is still weak even in these times of heightened awareness of the risk of inflation...

Get 'em now before everybody wants 'em
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by #Cruncher » Thu Feb 16, 2017 1:36 pm

Yes, the yield came in at 0.923% as shown on the auction results PDF file. [1]

Angst in this post wrote:Thanks #Cruncher, ... Which have you found to be the best predictor for the February new issue: last year's 30-yr TIPS secondary market yield or the real CMT rate?
To paraphrase the Dos Equis spokesman, "I don't always buy 30-year TIPS, but when I do ...", I'd use the actual rate of the outstanding 29-year TIPS adjusted for any possible trend versus the 28-year, 27-year, etc. [2] [3] I don't like to rely on the Treasury's Constant Maturity Rate since I don't understand exactly how it's calculated.

grayfox in this post wrote:We have had very low inflation for a while
2016 1.26%
...
2000 3.38%
... it sounds to me that people in the know are expecting higher inflation. It sounds like a good time to get some TIPS before the price goes up.
For those interested, as near as I can tell grayfox's CPI changes are based on full year averages as shown here. Regarding buying before the price goes up ... TIPS yields basically go up and down with real interest rates and I see no reason to expect real interest rates to go down (and TIPS prices to go up) just because inflationary expectations rise.

  1. Here is the table from my first post updated to include the actual 0.923% yield:

    Code: Select all

                                                      Actual
                                                     --------
    Yield               0.700%    0.800%    0.900%     0.923%     1.000%    1.100%    1.200%    1.300%
    Coupon              0.625%    0.750%    0.875%     0.875%     1.000%    1.000%    1.125%    1.250%
    Price              97.976%   98.670%   99.345%    98.746%   100.000%   97.453%   98.117%   98.762%
    Adjusted cost     9,799.06  9,868.49  9,935.95   9,876.07  10,001.49  9,746.78  9,813.17  9,877.71
    Accrued interest      2.24      2.69      3.14       3.14       3.59      3.59      4.04      4.49
    Total outlay      9,801.30  9,871.19  9,939.10   9,879.21  10,005.08  9,750.37  9,817.21  9,882.20
  2. As mentioned in my previous post, at the current time the yield is about the same for the five longest TIPS. I don't really understand why this is so. I would have expected TIPS with a shorter duration to have lower yields. But as the following table shows, the yields of the 2042-2046 maturities seem unaffected by duration.

    Code: Select all

     Maturity    Coupon    Yield  Duration
    ----------   ------    -----  --------
    02/15/2040    2.125    0.881      18.9
    02/15/2041    2.125    0.895      19.6
    02/15/2042    0.750    0.923      22.8
    02/15/2043    0.625    0.927      23.9
    02/15/2044    1.375    0.926      22.9
    02/15/2045    0.750    0.926      25.2
    02/15/2046    1.000    0.922      25.3
    Yields from WSJ TIPS Quotes 2/15/2017. Duration calculated with Excel DURATION function. For example:

    Code: Select all

     18.9 =DURATION(DATE(2017, 2, 16), DATE(2040, 2, 15), 2.125%, 0.881%, 2, 1)
    If I were buying in the secondary market, I'd favor the 2040 maturity since its yield is only about 0.04% points less than the 2046's, yet its duration is six years less.
  3. Be careful applying this methodology to the initial auction of 10-year TIPS. They are issued twice a year in January and July and their relative yields are affected by the seasonal patterns of the CPI adjustment.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by wbond » Fri Feb 17, 2017 11:45 am

John Bull can stand many things but he cannot stand 2%.

Cheers, wbond

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Fri Feb 17, 2017 11:50 am

wbond wrote:John Bull can stand many things but he cannot stand 2%.

Cheers, wbond


nice reference
http://www.economist.com/node/17043652

Buttonwood
Another paradox of thrift
Why low interest rates could also encourage saving
Sep 16th 2010


“JOHN BULL can stand many things but he cannot stand two per cent.” That aphorism, quoted by Walter Bagehot, a 19th-century editor of The Economist, expressed savers' traditional distaste for very low interest rates.

For the first three centuries of the Bank of England's existence, 2% was indeed as low as the central bank was willing to let interest rates fall. Not even the Depression, nor the long Victorian period of stable prices, induced the bank to go any further. Some minimum return on capital was deemed to be required.

personally I'm EXPECTING these 30 year tips to return around 3.3% and it's possible they might return 4% or more. We'll know in 30 years I guess, (God willing...)

cheers,
grok
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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wbond
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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by wbond » Fri Feb 17, 2017 11:58 am

Yes, although those 19th c. returns were real (more or less)!

Cheers, wbond

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Fri Feb 17, 2017 3:22 pm

just a warning that bloomberg is currently messed up in its display of the 30 year tips.

https://www.bloomberg.com/markets/rates ... t-bonds/us

Currently it shows:

Coupon 0.88 (i.e. 0.875)
price 102.04
yield 0.90%

Obviously the math doesn't work. If a 30 year bond with a 0.875% coupon trades at a premium price of 102.04% of par, then the yield will be LESS than the coupon not greater.

My guess is that the price and yield are still for the 2046 Tip which has a coupon of 1.00
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grayfox » Fri Feb 17, 2017 3:42 pm

I don't actually view TIPS as investing. It is simply to preserve the value of what you already have. As long as YTM is 0% or higher, It's like cash without inflation. If you have $10,000 and want to be able to buy $10,000 worth of stuff in 30 years, put it into TIPS.

[OT comment removed by admin LadyGeek]

:idea: If you think 0.923% is too low, just call it 92.3 bps. That sound a lot better! :wink:
Gott mit uns.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grok87 » Fri Feb 17, 2017 3:58 pm

grayfox wrote:I don't actually view TIPS as investing. It is simply to preserve the value of what you already have. As long as YTM is 0% or higher, It's like cash without inflation. If you have $10,000 and want to be able to buy $10,000 worth of stuff in 30 years, put it into TIPS.

[OT comment removed by admin LadyGeek]

:idea: If you think 0.923% is too low, just call it 92.3 bps. That sound a lot better! :wink:

+1
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by grayfox » Sat Feb 18, 2017 1:10 pm

As far as I understand, the purchases at the 30-year TIPS auction will settle on 2-28-2017. But according to Vanguard, I am already ahead on the TIPS purchase.

They list the current value for one bond at $989.86. Does that mean that the 2047 TIPS is already trading on the secondary market?

The total purchase cost for one bond was $987.92. This include the adjusted principle amount (987.60665) + adjusted accrued interest (0.31428). The index ratio is 1.00015.

How does that work? There are a lot of things to figure out with TIPS. Every time I buy them, I have to re-learn how it works.

That's why I like STRIPS. You buy them at a discount, say $750, and ten years later they are worth $1,000. Simple.

And then there is the question of what to do with the two coupon payment each year. You can't easily re-invest the interest and let it compound like you can with a direct CD.
Gott mit uns.

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by 209south » Sun Feb 19, 2017 8:15 am

#Cruncher, is there an updated version of your wonderful TIPS ladder spreadsheet on the forum somewhere?

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by #Cruncher » Sun Feb 19, 2017 1:35 pm

grayfox in next to last post wrote:... That's why I like STRIPS.
What would really be nice for inflation-indexed ladder builders is STRIPped TIPS to mature in the years when no regular TIPS do (2030-2031 & 2033-2039). As mentioned on this TD web page, the principal and interest of TIPS as well as nominal Treasuries can be separated. But so far no bond dealers have done this with TIPS. [1]

209south in last post wrote:#Cruncher, is there an updated version of your wonderful TIPS ladder spreadsheet ...?
I'd been planning to update it since the 30-year auction last Thursday. Thanks for the nudge to get me off my duff. A link to the updated spreadsheet is at the bottom of this web page. The spreadsheet shows that at WSJ TIPS Prices 2/17/2017 [2] a 30-year $30,000 per year ladder 2018-2047 could be purchased for $813,000.

  1. But tax reporting for STRIPped TIPS could be hairy in a taxable account. There would be two components of "OID": the accretion of the actual original issue discount and the increase or decrease in principal due to changes in the CPI which the IRS confusingly also calls "OID".
  2. The WSJ web page doesn't yet have the new Feb 2047 listed. I got its price (98.28%) from Bloomberg's US Rates & Bonds. (Something weird is going on with this Bloomberg web page. Sometimes it shows a price of 98.28 and sometimes it shows 102.10. Obviously the 2nd figure is wrong as grok87 pointed out in this post above.)

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by Angst » Sun Feb 19, 2017 5:22 pm

#Cruncher wrote:Yes, the yield came in at 0.923% as shown on the auction results PDF file. [1]

Angst in this post wrote:Thanks #Cruncher, ... Which have you found to be the best predictor for the February new issue: last year's 30-yr TIPS secondary market yield or the real CMT rate?

To paraphrase the Dos Equis spokesman, "I don't always buy 30-year TIPS, but when I do ...", I'd use the actual rate of the outstanding 29-year TIPS adjusted for any possible trend versus the 28-year, 27-year, etc. [2] [3] I don't like to rely on the Treasury's Constant Maturity Rate since I don't understand exactly how it's calculated.

Thank you #Cruncher - I should say I found your bolded comment above most interesting. I was curious simply to compare how well the R-CMT rate vs. the 29-yr TIPS yield (both 1-day prior to the auction) have predicted auction results in the past, so I looked at the data I could find. In the chart below, I pulled data for the prior day's 30-yr TIPS CMT from the TD website and I pulled data for the prior day's secondary market yield for outstanding 29-yr TIPS from the WSJ website, and the historical auction results were pulled from here. Here's what I found:

Code: Select all

30-yr Auctions  2/16/17  2/18/16  2/19/15  2/20/14  2/21/13  2/16/12  2/17/11  2/22/10
TD Yield Curve  0.93%    1.18%    0.82%    1.45%    0.62%    0.65%    2.21%    N/A
WSJ 29 Yr TIPS  0.922%   1.165%   0.791%   1.432%   0.588%   0.630%   2.203%   N/A
Auction Yield   0.923%   1.120%   0.842%   1.495%   0.639%   0.770%   2.190%   2.229%
"WINNERS"       WSJ      WSJ      TD       TD       TD       TD       WSJ      N/A

I note a few things...
- The 4 years when TD yield curve won, the auction yield came in higher and WSJ underestimated more than TD
- The 3 times WSJ won, all were fairly narrow ranges and twice the auction was below both TD and WSJ
- I haven't considered any of the context that the 28, 27 and 26-year TIPS yields might have provided

I'm somewhat inclined to say the R-CMT yield curve has been a slightly better predictor, but who knows. Maybe the last two years are the most relevant trend here. Any observations from you?

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Re: 30 yr TIPS Auction Feb 16: real yield 1.1%?

Post by 209south » Mon Feb 20, 2017 7:53 am

Thanks for the updated model, #Cruncher - the spreadsheet is a great resource!

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