Jan 2018 TIPS Auction
-
- Posts: 697
- Joined: Thu Mar 12, 2009 5:22 pm
Jan 2018 TIPS Auction
Anyone considering buying at the 10 year tips auction next week?
Based on the yield of the current tips maturing in 2028, the yield next week should be between.50 and.60.
Thanks
Based on the yield of the current tips maturing in 2028, the yield next week should be between.50 and.60.
Thanks
Re: Jan 2018 TIPS Auction
I'm buying, just like always.
High risk does not equal high reward. It equals high risk of no reward.
Re: Jan 2018 TIPS Auction
Already have my order in. This completes a ten year ladder.
Gill
Gill
Cost basis is redundant. One has a basis in an investment |
One advises and gives advice |
One should follow the principle of investing one's principal
-
- Posts: 697
- Joined: Thu Mar 12, 2009 5:22 pm
Re: Jan 2018 TIPS Auction
As a follow up to my original question, will someone explain to me how the "break even " inflation rate is determined. I know determining the break even inflation rate should be simple, but for some reason I have trouble with the concept.
Thanks
Thanks
Re: Jan 2018 TIPS Auction
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
- saltycaper
- Posts: 2650
- Joined: Thu Apr 24, 2014 8:47 pm
- Location: The Tower
Re: Jan 2018 TIPS Auction
The breakeven inflation rate is just the rate of inflation that would cause a nominal Treasury bond to have the same return as a TIPS of equal maturity. If the nominal bond is yielding 3% and the TIPS is yielding 0.5%, the breakeven inflation rate is 2.5% (nominal yield minus TIPS yield). If inflation is less than 2.5%, the nominal bond will have a higher return. If inflation is greater than 2.5%, the TIPS will have a higher return. (Whether one should care about which security will have a higher before purchasing is a different matter.)antiqueman wrote: ↑Sat Jan 13, 2018 7:56 pm As a follow up to my original question, will someone explain to me how the "break even " inflation rate is determined. I know determining the break even inflation rate should be simple, but for some reason I have trouble with the concept.
Thanks
Trying to figure anything else from the breakeven rate, such as using it as a measure of expected inflation, gets a little hairier.
I, too, already put my order in for the upcoming auction.
Quod vitae sectabor iter?
Re: Jan 2018 TIPS Auction
Fidelity's current YTW is 0.57% and that's usually a good estimate of the auction yield.antiqueman wrote: ↑Sat Jan 13, 2018 7:44 pm Anyone considering buying at the 10 year tips auction next week?
Based on the yield of the current tips maturing in 2028, the yield next week should be between.50 and.60.
-
- Posts: 697
- Joined: Thu Mar 12, 2009 5:22 pm
Re: Jan 2018 TIPS Auction
The breakeven inflation rate is just the rate of inflation that would cause a nominal Treasury bond to have the same return as a TIPS of equal maturity. If the nominal bond is yielding 3% and the TIPS is yielding 0.5%, the breakeven inflation rate is 2.5% (nominal yield minus TIPS yield). If inflation is less than 2.5%, the nominal bond will have a higher return. If inflation is greater than 2.5%, the TIPS will have a higher return. (Whether one should care about which security will have a higher before purchasing is a different matter.)
Trying to figure anything else from the breakeven rate, such as using it as a measure of expected inflation, gets a little hairier.
I, too, already put my order in for the upcoming auction.
Thank you saltycaper. It appear then that the estimated breakeven rate is around 2 % presently.
I do not believe that inflation will be that low over the next ten years. It seems that a lot of things are becoming more expensive.
I do have another question. When the term "break even inflation rate " is used is that referring to the CPI . I am assume its not Chained CPI.
Trying to figure anything else from the breakeven rate, such as using it as a measure of expected inflation, gets a little hairier.
I, too, already put my order in for the upcoming auction.
Thank you saltycaper. It appear then that the estimated breakeven rate is around 2 % presently.
I do not believe that inflation will be that low over the next ten years. It seems that a lot of things are becoming more expensive.
I do have another question. When the term "break even inflation rate " is used is that referring to the CPI . I am assume its not Chained CPI.
- saltycaper
- Posts: 2650
- Joined: Thu Apr 24, 2014 8:47 pm
- Location: The Tower
Re: Jan 2018 TIPS Auction
Yes, currently, the principal of a TIPS is adjusted by the Consumer Price Index for All Urban Consumers (CPI-U), not the chained CPI-U (C-CPI-U). You can read more here:antiqueman wrote: ↑Sun Jan 14, 2018 1:27 pm
I do have another question. When the term "break even inflation rate " is used is that referring to the CPI . I am assume its not Chained CPI.
Summary of Marketable Treasury Inflation-Protected Securities
Quod vitae sectabor iter?
Re: Jan 2018 TIPS Auction
The 10-year break even inflation rate has been inching up and is indeed at 2% recently
https://fred.stlouisfed.org/series/T10YIE
https://fred.stlouisfed.org/series/T10YIE
Last edited by gilgamesh on Sun Jan 14, 2018 6:31 pm, edited 1 time in total.
Re: Jan 2018 TIPS Auction
I am also building a 10 year ladder and will be placing an order next week.
-
- Posts: 697
- Joined: Thu Mar 12, 2009 5:22 pm
Re: Jan 2018 TIPS Auction
Thank you to all who replied.
Saltycaper, thank you for the CPI-U breakeven inflation rate information.
Saltycaper, thank you for the CPI-U breakeven inflation rate information.
Re: Jan 2018 TIPS Auction
The auction result just came in.
Coupon rate = 0.50%; Adjusted price per $100 = 99.536480
https://treasurydirect.gov/instit/annce ... 0118_1.pdf
Coupon rate = 0.50%; Adjusted price per $100 = 99.536480
https://treasurydirect.gov/instit/annce ... 0118_1.pdf
Re: Jan 2018 TIPS Auction
What were you expecting? Yesterday's Treasury Real Yield Curve data indicated .53% for ten year term, so today's auction actually came in a bit higher.
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: Jan 2018 TIPS Auction
As I write this, TIPS maturing 1/15/2028 with coupon of 1.75% is offered for purchase on the secondary market at a yield of 0.571%.
Re: Jan 2018 TIPS Auction
Interesting. The ten year maturing 7/15/27 was last asking .531, so not sure why the 30 year with the higher coupon is yielding more. I thought it was lower earlier today when I checked, but I'm really not sure. This may be one of the those things that #Cruncher could explain.MtnBiker wrote: ↑Thu Jan 18, 2018 3:25 pmAs I write this, TIPS maturing 1/15/2028 with coupon of 1.75% is offered for purchase on the secondary market at a yield of 0.571%.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
-
- Posts: 15363
- Joined: Fri Apr 10, 2015 12:29 am
Re: Jan 2018 TIPS Auction
A seasoned TIP is worth less because the deflation put at maturity only sets a floor at original par, not your purchase price. Thus, such a TIP should have a higher yield than a new issue of the same term if there is accumulated positive inflation correction in the principal.MtnBiker wrote: ↑Thu Jan 18, 2018 3:25 pmAs I write this, TIPS maturing 1/15/2028 with coupon of 1.75% is offered for purchase on the secondary market at a yield of 0.571%.