30 yr TIPS auction 6/22: yield 1.0%?

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grok87
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30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Thu Jun 15, 2017 4:46 pm

30 yr tips auction 6/22: yield 1.0%?

The next 30 year tips auction will be next thursday june 22nd. Based on the secondary market yield right now of 0.97% i'm hoping we'll get to an auction yield of 1% or more.

I plan to buy- anyone else in?

According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958. Based on today's price of 97.64 that means you will need $990.57 for every bond (i.e. $1000 of original face) that you want to buy.

In case you are cutting it close with your available cash, the formula for cash needed per bond is:

Price*10.1148 + 2.958
"...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 6/22: yield 1.0%?

Post by DVMResident » Thu Jun 15, 2017 5:26 pm

Why not iBonds over individual 30 yr TIPS in the face of rising interest rates? (assuming you need <$10/$20k/yr)

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by Artsdoctor » Thu Jun 15, 2017 5:30 pm

Grok,

It is sobering to say it, but: I'm just too old to buy 30-year TIPS anymore . . . My LMP ladder goes out to 85 but after that, it's going to be an annuity or something, depending on how the market forces and our health hold out.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by llama » Thu Jun 15, 2017 5:52 pm

I'm planning on buying. Already maxing my I Bonds, so kind of a barbell approach between that and the long TIPS. I was originally looking at buying LTPZ instead but was scared off by the thin trading volume and the expense ratio.

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FIREchief
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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by FIREchief » Thu Jun 15, 2017 6:30 pm

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grok87
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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Thu Jun 15, 2017 6:41 pm

DVMResident wrote:Why not iBonds over individual 30 yr TIPS in the face of rising interest rates? (assuming you need <$10/$20k/yr)
I'm already maxed out of ibonds. Plus ibonds real yield is still zero. I'm buying my tips in a tax deferred account.
"...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 6/22: yield 1.0%?

Post by #Cruncher » Thu Jun 15, 2017 7:22 pm

grok87 in original post wrote:According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958.
Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
FIREchief in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3409892#p3409892]this post[/url] wrote: Won't the purchase price discount drop if the auction hits or exceeds 1%?
The price and purchase cost will depend on the yield set at the auction. Here they are per $1,000 of face value for various possible yields:

Code: Select all

Yield      Price      Cost

Code: Select all

0.750%   103.315%   $1,049.75
0.775%   102.642%   $1,042.94
0.800%   101.975%   $1,036.18
0.825%   101.312%   $1,029.46
0.850%   100.653%   $1,022.79
0.875%   100.000%   $1,016.17
0.900%    99.351%   $1,009.60
0.925%    98.707%   $1,003.08
0.950%    98.067%     $996.60
0.975%    97.432%     $990.16
1.000%    96.801%     $983.78
1.025%    96.175%     $977.44
1.050%    95.554%     $971.14
1.075%    94.937%     $964.89
1.100%    94.324%     $958.69
1.125%    93.716%     $952.52
1.150%    93.112%     $946.41
1.175%    92.512%     $940.33
1.200%    91.917%     $934.30
1.225%    91.326%     $928.31
1.250%    90.739%     $922.37
Example for yield = 0.75% using the Excel PRICE function:

Code: Select all

 103.315% = PRICE(DATE(2017, 6, 30), DATE(2047, 2, 15), 0.875%, 0.75%, 100, 2, 1) / 100
$1,049.75 = 1000 * 1.01287 * 103.315% + 3.30512

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Thu Jun 15, 2017 7:54 pm

#Cruncher wrote:
grok87 in original post wrote:According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958.
Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
"...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 6/22: yield 1.0%?

Post by FIREchief » Thu Jun 15, 2017 8:43 pm

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by FIREchief » Thu Jun 15, 2017 8:45 pm

grok87 wrote:
#Cruncher wrote:
grok87 in original post wrote:According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958.
Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
It's not a screw up. Fidelity uses then-current data to estimate the bond's price at auction, but they qualify it as only an estimate and subject to change based upon the actual auction results.
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 6/22: yield 1.0%?

Post by grok87 » Thu Jun 15, 2017 9:50 pm

FIREchief wrote:
grok87 wrote:
#Cruncher wrote:
grok87 in original post wrote:According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958.
Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
It's not a screw up. Fidelity uses then-current data to estimate the bond's price at auction, but they qualify it as only an estimate and subject to change based upon the actual auction results.
ok but once the auction has been announced aren't the exact values for accrued interest and indexed principal known?
"...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 6/22: yield 1.0%?

Post by FIREchief » Thu Jun 15, 2017 9:59 pm

grok87 wrote:
FIREchief wrote:
grok87 wrote:
#Cruncher wrote:
grok87 in original post wrote:According to fidelity, indexed principal is now at $1,011.48 and accrued interest is $2.958.
Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
It's not a screw up. Fidelity uses then-current data to estimate the bond's price at auction, but they qualify it as only an estimate and subject to change based upon the actual auction results.
ok but once the auction has been announced aren't the exact values for accrued interest and indexed principal known?
I believe the final figure for accrued interest is based upon the coupon rate that is established at auction. Also, as I suggested earlier, the purchase discount will be determined by the delta between the auction established interest rate and the coupon rate. I've only bought TIPS at auction three times (so far) so I may not fully understand. I'm sure others will clarify if I have misspoken. :happy
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Thu Jun 15, 2017 10:38 pm

FIREchief wrote:
grok87 wrote:
FIREchief wrote:
grok87 wrote:
#Cruncher wrote:Those are the values on 6/16/2017. But the relevant figures are the ones on 6/30/2017, the date the TIPS will be issued. The index ratio on that date is 1.01287 and the adjusted accrued interest is $3.30512 per $1,000 face value. You can see these figures on either the auction announcement or on the June 30 row of this web page.
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
It's not a screw up. Fidelity uses then-current data to estimate the bond's price at auction, but they qualify it as only an estimate and subject to change based upon the actual auction results.
ok but once the auction has been announced aren't the exact values for accrued interest and indexed principal known?
I believe the final figure for accrued interest is based upon the coupon rate that is established at auction. Also, as I suggested earlier, the purchase discount will be determined by the delta between the auction established interest rate and the coupon rate. I've only bought TIPS at auction three times (so far) so I may not fully understand. I'm sure others will clarify if I have misspoken. :happy
well remember this is a reopening. the coupon is known. it is 0.875%
"...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 6/22: yield 1.0%?

Post by FIREchief » Thu Jun 15, 2017 10:54 pm

grok87 wrote:
FIREchief wrote:
grok87 wrote:
FIREchief wrote:
grok87 wrote:
Thanks for the correction. That's kind of bad for fidelity to screw up that way! (And me too of course for not double-checking their figures against the auction announcement...)
It's not a screw up. Fidelity uses then-current data to estimate the bond's price at auction, but they qualify it as only an estimate and subject to change based upon the actual auction results.
ok but once the auction has been announced aren't the exact values for accrued interest and indexed principal known?
I believe the final figure for accrued interest is based upon the coupon rate that is established at auction. Also, as I suggested earlier, the purchase discount will be determined by the delta between the auction established interest rate and the coupon rate. I've only bought TIPS at auction three times (so far) so I may not fully understand. I'm sure others will clarify if I have misspoken. :happy
well remember this is a reopening. the coupon is known. it is 0.875%
Dooh!! :oops: My bad. The last two TIPS auctions that I purchased during were both initial auctions, so I wasn't even thinking about this being a reopening. Thanks for the clarification.

So, we know the coupon is .875%. That said, I believe that both the accrued interest and the purchase discount will be based upon the auction determined yield. #cruncher's post now makes perfect sense (as I should have known it would).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by #Cruncher » Fri Jun 16, 2017 12:51 am

grok87 in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3410108#p3410108]this post[/url] wrote: ok but once the auction has been announced aren't the exact values for accrued interest and indexed principal known?
Actually they were knowable well before that.
FIREchief in previous post wrote:So, we know the coupon is .875%. That said, I believe that both the accrued interest and the purchase discount will be based upon the auction determined yield.
The accrued interest doesn't depend on the auction. It, as well as the 1.01287 6/30/2017 index ratio (see TreasuryDirect's CPI Query Results for 2/15/2047 TIPS), have been known since 5/12/2017 when the April CPI was released. Given the index ratio, the accrued interest can be calculated as follows (per $1,000 face value):

Code: Select all

     181 = days from 2/15/17 to 8/15/17, the next interest payment date
     135 = days from 2/15/17 to 6/30/17, the issue date
$3.26312 = unadjusted accrued interest = 1000 * (0.875% / 2) * (135 / 181)
$3.30512 =   adjusted accrued interest = 1.01287 * 3.26312

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by Angst » Fri Jun 16, 2017 4:29 am

Count me in, as usual. Probably for about ten more years.
And thank you #Cruncher, as always.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Fri Jun 16, 2017 6:19 am

Artsdoctor wrote:Grok,

It is sobering to say it, but: I'm just too old to buy 30-year TIPS anymore . . . My LMP ladder goes out to 85 but after that, it's going to be an annuity or something, depending on how the market forces and our health hold out.
Hi ArtsDoctor,

Fair enough. I'm also planning to annuiitze in my 80s.

But i'm also planning to Build my tips ladder out into my 90s. I would then sell the remainder of the tips ladder (when i'm in my 80s) to help pay for the annuity.

The idea here is that the price you will pay for the annuity is hedged by the value of the tips. See this link for example
https://www.immediateannuities.com/annuity-trends/
"...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 6/22: yield 1.0%?

Post by carolinaman » Fri Jun 16, 2017 7:45 am

grok87 wrote:
Artsdoctor wrote:Grok,

It is sobering to say it, but: I'm just too old to buy 30-year TIPS anymore . . . My LMP ladder goes out to 85 but after that, it's going to be an annuity or something, depending on how the market forces and our health hold out.
Hi ArtsDoctor,

Fair enough. I'm also planning to annuiitze in my 80s.

But i'm also planning to Build my tips ladder out into my 90s. I would then sell the remainder of the tips ladder (when i'm in my 80s) to help pay for the annuity.

The idea here is that the price you will pay for the annuity is hedged by the value of the tips. See this link for example
https://www.immediateannuities.com/annuity-trends/
The 1% yield is intriguing but at age 72, I do not see myself around for the 30 year term. Another concern is that if I were to sell before maturity and interest rates have increased substantially, I may wind up selling at a loss. I understand that TIPS are great for inflation, but do respond to interest rate increases just like other long term bonds. Are my thoughts accurate about this?

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by Doc » Fri Jun 16, 2017 8:32 am

carolinaman wrote:I understand that TIPS are great for inflation, but do respond to interest rate increases just like other long term bonds. Are my thoughts accurate about this?
And the price increases if interest rates fall. Risk is not on a one way street.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Fri Jun 16, 2017 10:17 am

carolinaman wrote:
grok87 wrote:
Artsdoctor wrote:Grok,

It is sobering to say it, but: I'm just too old to buy 30-year TIPS anymore . . . My LMP ladder goes out to 85 but after that, it's going to be an annuity or something, depending on how the market forces and our health hold out.
Hi ArtsDoctor,

Fair enough. I'm also planning to annuiitze in my 80s.

But i'm also planning to Build my tips ladder out into my 90s. I would then sell the remainder of the tips ladder (when i'm in my 80s) to help pay for the annuity.

The idea here is that the price you will pay for the annuity is hedged by the value of the tips. See this link for example
https://www.immediateannuities.com/annuity-trends/
The 1% yield is intriguing but at age 72, I do not see myself around for the 30 year term. Another concern is that if I were to sell before maturity and interest rates have increased substantially, I may wind up selling at a loss. I understand that TIPS are great for inflation, but do respond to interest rate increases just like other long term bonds. Are my thoughts accurate about this?
Agree.

But while some sources show the average life expectancy for a 72 year old man to be about 12 years, other sources show that there is a substantial probability of living to age 90 or beyond.

https://www.google.com/amp/s/amp.thegua ... ngtermcare
One solution is to buy an annuity in your 80s. But the price of the annuity is unknown. One can buy a deferred fixed income annuity. But as far as i know there are no deferred inflation-adjusted annuities.
In my opinion the best way to hedge the price risk of a future inflation-adjusted annuity purchase is to have a portfolio of tips with a similar duration to the annuity.

Yes if real interest rates go up your tips may go down in value. But the price of the annuity should drop as well so you should be hedged.
"...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 6/22: yield 1.0%?

Post by Doc » Fri Jun 16, 2017 10:46 am

grok87 wrote:Yes if real interest rates go up your tips may go down in value. But the price of the annuity should drop as well so you should be hedged.
But the TIPS price may also go up in value.

Assume the current yield on the 30 is 1.0% and you sell it in 20 years with 10 years remaining.
Assume the yield curve doesn't change.
The actual current yield on the ten is 0.49%.
https://www.treasury.gov/resource-cente ... =realyield

So the price of your 30 in 20 years is going to be ~(1.0-0.49)*10+1000=$1005

Don't make lifetime decisions on your estimate WAG of some interest rate 20 years in the future.

Conventional wisdom (Swedroe?): "The best estimate of the future yield curve is the current yield curve although not a very good one."
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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by Artsdoctor » Fri Jun 16, 2017 7:34 pm

Grok,

Interesting idea, selling the later portion of your TIPS ladder to buy an annuity. And the points above underscoring the unpredictability of annuity rates well into the future are accurate.

There are deferred inflation-linked annuities (DIAs) but I suspect that the product will be more widely available in the future. I can't say for sure, but I would guess that simple annuities will become more commonly used, and that it's a very small leap to deferred inflation-linked "simple" annuities.

I'm not opposed to extending my TIPS ladder past 85, but I want to see how our health is in about 10 years before I get cocky with longevity. There are other assets to tap, if necessary.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Fri Jun 16, 2017 8:48 pm

Artsdoctor wrote:Grok,

Interesting idea, selling the later portion of your TIPS ladder to buy an annuity. And the points above underscoring the unpredictability of annuity rates well into the future are accurate.

There are deferred inflation-linked annuities (DIAs) but I suspect that the product will be more widely available in the future. I can't say for sure, but I would guess that simple annuities will become more commonly used, and that it's a very small leap to deferred inflation-linked "simple" annuities.

I'm not opposed to extending my TIPS ladder past 85, but I want to see how our health is in about 10 years before I get cocky with longevity. There are other assets to tap, if necessary.
thanks. something to think about anyway...
"...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 6/22: yield 1.0%?

Post by grok87 » Mon Jun 19, 2017 6:34 am

Update: secondary market yield now 0.94% and price at 98.33
Still hoping for 1.0% or better at auction.
"...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 6/22: yield 1.0%?

Post by shashi » Mon Jun 19, 2017 8:59 am

Are TIPS still better hedge against real inflation? I am seeing most people just use rental property investment. I do have ibonds but not convinced how much tips or ibonds can protect with true inflation such as healthcare costs etc.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Mon Jun 19, 2017 1:44 pm

shashi wrote:Are TIPS still better hedge against real inflation? I am seeing most people just use rental property investment. I do have ibonds but not convinced how much tips or ibonds can protect with true inflation such as healthcare costs etc.
Well commercial real estate declined by about 40% i think in the great recession.

It would be nice to have a new version of tips indexed to medical inflation. MTIPs?
But i wouldn't hold my breath.
"...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 6/22: yield 1.0%?

Post by shashi » Tue Jun 20, 2017 12:54 am

Same with holding treasury inflation protection and believing that it will take care of true inflation when we actually need to draw.

In other words, we should just have very very low expectations of any iprotection and keep working longer hopefully with decent health.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Wed Jun 21, 2017 5:25 am

Well secondary mkt yield is now 0.91% so 1% very unlikely at tomorrow's auction.

I'm now hoping for 0.95%
"...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 6/22: yield 1.0%?

Post by Doc » Wed Jun 21, 2017 7:04 am

Grok, the yield curve has been flattening, "me thinks you hope to much". :D
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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by Angst » Wed Jun 21, 2017 9:30 am

I've never been too concerned that I might not live long enough to take full advantage of a TIPS portfolio that takes me to year 100, but I would be concerned that I might outlive my TIPS if they only went to age 90. And if I (or my trusty nurses) begin to believe that I'm circling the drain sooner than I'd expected, a portion of my remaining TIPS could easily be liquidated for more contemporary purposes. I think sometimes people are overly concerned about extending their LMP out a little too far.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Wed Jun 21, 2017 7:02 pm

Angst wrote:I've never been too concerned that I might not live long enough to take full advantage of a TIPS portfolio that takes me to year 100, but I would be concerned that I might outlive my TIPS if they only went to age 90. And if I (or my trusty nurses) begin to believe that I'm circling the drain sooner than I'd expected, a portion of my remaining TIPS could easily be liquidated for more contemporary purposes. I think sometimes people are overly concerned about extending their LMP out a little too far.
agree. to support your point here are some of the stats from the Social Security Life table which may be of interest to other Bogleheads:

65 year old male
Life expectancy 18 years
probability of survival to age...
age 70: 92%
age 75: 80%
age 80: 65%
age 85: 46%
age 90: 26%
age 95: 9%

65 year old female
Life expectancy 20 years
probability of survival to age...
age 70: 95%
age 75: 87%
age 80: 75%
age 85: 58%
age 90: 37%
age 95: 17%
"...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 6/22: yield 1.0%?

Post by stlutz » Wed Jun 21, 2017 9:01 pm

Well secondary mkt yield is now 0.91% so 1% very unlikely at tomorrow's auction.

I'm now hoping for 0.95%
Auction rates are generally a little lower than secondary markets (due to liquidity). .90% is a more realistic hope.

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Wed Jun 21, 2017 9:34 pm

stlutz wrote:
Well secondary mkt yield is now 0.91% so 1% very unlikely at tomorrow's auction.

I'm now hoping for 0.95%
Auction rates are generally a little lower than secondary markets (due to liquidity). .90% is a more realistic hope.
it can go either way.if the auction yield is higher than the secondary market just before the auction it is said that the auction "tailed"
not sure what the word is if it goes the other way.

i'm expecting the auction to tail by at least 2 bps cause inflation risk is perceived to be pretty low right now
"...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 6/22: yield 1.0%?

Post by Doc » Wed Jun 21, 2017 9:39 pm

:wink:
stlutz wrote:
Well secondary mkt yield is now 0.91% so 1% very unlikely at tomorrow's auction.

I'm now hoping for 0.95%
Auction rates are generally a little lower than secondary markets (due to liquidity). .90% is a more realistic hope.
I thought the opposite was true. On the run issues are more in demand and that pushes price up and yield down. I used to be able to see this on Fido's charts but they are not available since I switched to Chrome.
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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by #Cruncher » Thu Jun 22, 2017 12:45 am

Doc in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3410746#p3410746]this post[/url] wrote:
grok87 wrote:Yes if real interest rates go up your tips may go down in value. But the price of the annuity should drop as well so you should be hedged.
But the TIPS price may also go up in value.
Yes, and if so, the price of the annuity would likely also go up. That's what Grok means by "hedged".
Doc in same post wrote:So the price of your 30 in 20 years is going to be ~(1.0-0.49)*10+1000=$1005
The quick and dirty estimate should be $1,051, not $1,005:

Code: Select all

$1,005    = (1.0 - 0.49) * 10       + 1000 : bad estimate
$1,051    = (1 + 10 * (1% - 0.49%)) * 1000 : good estimate, which is close to the actual price:
$1,049.71 = 1000 * (PRICE(DATE(2037, 2, 15), DATE(2047, 2, 15), 1%, 0.49%, 100, 2, 1) / 100)
grok87 in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3418021#p3418021]this post[/url] wrote:... here are some of the stats from the Social Security Life table ...
65 year old male
...
65 year old female ...
If married, joint probabilities are also useful. Here they are based on the SSA 2013 Period Life Table for a male / female couple both age 65:

Code: Select all

      --- # Alive ---    ------- Percent Alive ------
Age    Male    Female    Male  Female    Both  Either
---   ------   ------    ----  ------    ----  ------
 65   80,691   88,054    100%    100%    100%    100%
 70   73,461   82,864     91%     94%     86%     99% [*]
 75   63,657   75,177     79%     85%     67%     97%
 80   50,629   63,880     63%     73%     46%     90%
 85   34,482   48,205     43%     55%     23%     74%
 90   17,735   29,104     22%     33%      7%     48%
 95    5,647   11,839      7%     13%      1%     20%
100      935    2,745      1%      3%      0%      4%
105       78      333      0%      0%      0%      0%
You can see these probabilities for other ages with my longevity estimator spreadsheet.
stlutz in [url=https://www.bogleheads.org/forum/viewtopic.php?p=3418186#p3418186]this post[/url] wrote:Auction rates are generally a little lower than secondary markets ...
History doesn't back this up. From a recent post in another thread:
In [url=https://www.bogleheads.org/forum/viewtopic.php?p=3418344#p3418344][i]30-Year TIPS Auction Yields Compared to Secondary Market[/i][/url] I wrote:Of the 13 auctions, [only] four times one would have gotten a worse yield compared to the closing secondary market yield the day before. ... On average the yield one got at the auction was 0.025% points better than the closing yield in the secondary market the day before. (underline added)
* Example calculation for age 70:

Code: Select all

Male:   91%  0.91040 = 73461 / 80691
Female: 94%  0.94106 = 82864 / 88054
Both:   86%  0.85674 = 0.91040 * 0.94106
Either: 99%  0.99472 = 1 - (1 - 0.91040) * (1 - 0.94106)
Edit at 1:05 PM: The auction yield came in at 0.880% according to the auction results PDF. This is 0.016% points less than the 0.896% at yesterday's close according to WSJ TIPS Quotes 6/21/2017. So it looks like stlutz was right this time. :wink:

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Thu Jun 22, 2017 12:11 pm

Yep

Congrats stlutz

Looks like there is a suprising amount of demand for long dated tips

I'm wondering if pension plans are moving to derisking (ie buy long dated tips) as they may feel that stock market valuations are somewhat high.
"...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 6/22: yield 1.0%?

Post by stlutz » Thu Jun 22, 2017 10:49 pm

With a 30 year inflation breakeven of 1.84%, the TIPS seemed like a very good value and possibly helped drive demand.

I have no evidence to actually indicate that this is what people were thinking, but it should be good enough analysis to get me on CNBC. :D

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Re: 30 yr TIPS auction 6/22: yield 1.0%?

Post by grok87 » Fri Jun 23, 2017 7:00 am

stlutz wrote:With a 30 year inflation breakeven of 1.84%, the TIPS seemed like a very good value and possibly helped drive demand.

I have no evidence to actually indicate that this is what people were thinking, but it should be good enough analysis to get me on CNBC. :D
Congrats again for calling the auction! Let me know when you are on cnbc- i'll watch!
:)

The thing is, 30 year breakeven inflation rates have been lower than 1.84% before
https://fred.stlouisfed.org/series/T30YIEM

I'm going with the pension fund derisking idea. Should be interesting to see if it persists. And to know if it is public plans or private plans. My guess is that it is the private plans as they are more in derisking mode.

If this is indeed a change in behavior by institutional investors, then watch out! There may be more demand for tips and higher breakevens.

Tips-get em while they're hot before they're all gone!
"...people always live for ever when there is any annuity to be paid them"- Jane Austen

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