TIPS question - ytm for Jan vs. Jul issues
TIPS question - ytm for Jan vs. Jul issues
The following link is to Fidelity's TIPS offerings in the secondary market. Although the market is closed as I type this, I believe the numbers just show the last values present at Friday's close.
https://fixedincome.fidelity.com/ftgw/f ... 7f0002aa33
For all years between 2022 and 2027, the ten year TIPS maturing in January have a yield to maturity about 2 basis points higher than those maturing in July (despite the fact that the July notes are six months longer in term). Why is this? In two of those years, the July note has a larger coupon. In two of those years, the January note has a larger coupon. In the other two years, the coupons are identical. Do investors just place a slightly higher value on a note maturing in January?
https://fixedincome.fidelity.com/ftgw/f ... 7f0002aa33
For all years between 2022 and 2027, the ten year TIPS maturing in January have a yield to maturity about 2 basis points higher than those maturing in July (despite the fact that the July notes are six months longer in term). Why is this? In two of those years, the July note has a larger coupon. In two of those years, the January note has a larger coupon. In the other two years, the coupons are identical. Do investors just place a slightly higher value on a note maturing in January?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: TIPS question - ytm for Jan vs. Jul issues
Without looking
1) It's Sunday.
2) Is there a coupon difference.
3) is there an inflation component difference which makes one more subject to deflation.
4) Did Fido make a mistake.
5) is July a reopening.
1) It's Sunday.
2) Is there a coupon difference.
3) is there an inflation component difference which makes one more subject to deflation.
4) Did Fido make a mistake.
5) is July a reopening.
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.
Re: TIPS question - ytm for Jan vs. Jul issues
See original post (I first spotted this phenomenon during the trading day Friday - so it is not an after hours issue):Doc wrote:Without looking
1) It's Sunday.
FIREchief wrote:Although the market is closed as I type this, I believe the numbers just show the last values present at Friday's close.
See original post:Doc wrote:2) Is there a coupon difference.
FIREchief wrote:In two of those years, the July note has a larger coupon. In two of those years, the January note has a larger coupon. In the other two years, the coupons are identical.
Don't the secondary market prices include the inflation adjustment in the ytm calculation?Doc wrote:Without looking
3) is there an inflation component difference which makes one more subject to deflation.
I don't understand what this has to do with anything. These are existing TIPS in the secondary market. It really makes no difference whether they were bought in the original auctions or one of the two reopenings later in the same year.Doc wrote: 5) is July a reopening.
Hopefully #Cruncher will weigh in, as he seems to understand this stuff better than anybody.FIREchief wrote:The following link is to Fidelity's TIPS offerings in the secondary market.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: TIPS question - ytm for Jan vs. Jul issues
The same anomaly shows up on the WSJ TIPS Quotes 7/21/2017:FIREchief in original post wrote:For all years between 2022 and 2027, the ten year TIPS maturing in January have a yield to maturity about 2 basis points higher than those maturing in July ...
Code: Select all
-------- Yield --------
Matures Coupon Jan July Diff
Code: Select all
2022 Jan 15 0.125 0.074
2022 Jul 15 0.125 0.048 0.026
2023 Jan 15 0.125 0.192
2023 Jul 15 0.375 0.170 0.022
2024 Jan 15 0.625 0.309
2024 Jul 15 0.125 0.291 0.018
2025 Jan 15 0.250 0.394
2025 Jan 15 2.375 0.402
2025 Jul 15 0.375 0.371 0.023
2026 Jan 15 0.625 0.460
2026 Jan 15 2.000 0.467
2026 Jul 15 0.125 0.440 0.020
2027 Jan 15 0.375 0.487
2027 Jan 15 2.375 0.505
2027 Jul 15 0.375 0.455 0.032
The difference arises because TIPS principal is indexed to the non-seasonally adjusted Consumer Price Index. See the threads, TIPS yield stairstep increase and Seasonal Indexation Impacts in TIPS Prices and Yields for more information. Here is a graph from my post in the latter thread that shows how removing the effect of CPI seasonality smooths out the yield curve:
The takeaway is that you'll likely gain nothing by buying January instead of July. If seasonal CPI patterns persist, you'll get a CPI adjustment boost with the July that will offset its lower real yield.
Re: TIPS question - ytm for Jan vs. Jul issues
Thanks #Cruncher!!! I figured there had to be some logical explanation, but it certainly wasn't obvious (at least to me).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: TIPS question - ytm for Jan vs. Jul issues
Thanks #Cruncher
It looks like I was at least batting 200 with my 5 WAGs.
It looks like I was at least batting 200 with my 5 WAGs.
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.
Re: TIPS question - ytm for Jan vs. Jul issues
Other than the inflation calculation (which #Cruncher explained), which of your other "WAGs" do you think influenced this issue?Doc wrote:Thanks #Cruncher
It looks like I was at least batting 200 with my 5 WAGs.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Re: TIPS question - ytm for Jan vs. Jul issues
FIREchief wrote:Other than the inflation calculation (which #Cruncher explained), which of your other "WAGs" do you think influenced this issue?Doc wrote:Thanks #Cruncher
It looks like I was at least batting 200 with my 5 WAGs.
Doc wrote:3) is there an inflation component difference which makes one more subject to deflation.
I just asked the question. #Cruncher had the exact answer.
#Cruncher is the go to person for TIPS questions. Hands down.
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.
Re: TIPS question - ytm for Jan vs. Jul issues
When you're in a crunch, who you gonna call?