30 yr tips auction 2/15: 1.0% yield?

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grok87
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30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Thu Feb 08, 2018 7:17 am

On thursday february 15th the treasury will auction 30 year tips.

Given that 29 year tips are currently trading on the secondary market at a real yield of 0.96% i'm hopeful that we might get to a 1.0% real yield at this auction.

I am planning to participate and for a somewhat larger amount than usual given the higher yields. Anyone else planning to participate?

Cheers,
Grok
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Dudley
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Dudley » Thu Feb 08, 2018 7:52 am

No. But I'm drawn to the 5yr TIPS at >0.5%

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gasman
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by gasman » Thu Feb 08, 2018 7:55 am

Dudley wrote:
Thu Feb 08, 2018 7:52 am
No. But I'm drawn to the 5yr TIPS at >0.5%
yup. been nibbling in this range.

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Doc
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Doc » Thu Feb 08, 2018 11:58 am

grok87 wrote:
Thu Feb 08, 2018 7:17 am
i'm hopeful that we might get to a 1.0% real yield at this auction.
We can put a Tesla beyond Mars but we can't get the real yield of a thirty above 2%. I don't Grok that. :D

(I know, I promised to stop harassing you about the thirty but with Musk's Mars feat this week I just couldn't resist.)
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by jebmke » Thu Feb 08, 2018 12:00 pm

I'll get interested again when the 10-year gets up in the 2% range.
When you discover that you are riding a dead horse, the best strategy is to dismount.

garlandwhizzer
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by garlandwhizzer » Thu Feb 08, 2018 1:07 pm

jebmke wrote:
I'll get interested again when the 10-year gets up in the 2% range.
1+

I wouldn't touch a 30 year bond instrument of any type now without an expected real yield of 2%. Rates on 10 yr and 30 yr. bonds are going up now and IMO that trend is likely to continue for some time. If you want some long duration TIPS--personally I don't want long duration bonds of any type now--there are likely to be better yield entry points in the future.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Thu Feb 08, 2018 1:49 pm

garlandwhizzer wrote:
Thu Feb 08, 2018 1:07 pm
jebmke wrote:
I'll get interested again when the 10-year gets up in the 2% range.
1+

I wouldn't touch a 30 year bond instrument of any type now without an expected real yield of 2%. Rates on 10 yr and 30 yr. bonds are going up now and IMO that trend is likely to continue for some time. If you want some long duration TIPS--personally I don't want long duration bonds of any type now--there are likely to be better yield entry points in the future.

Garland Whizzer
There have been several periods over the last 10 years or so when people have been similarly confident about rising rates, but of course, only time will tell. :) And even though probably most Bogelheads do not own individual Treasuries, many Bogleheads are "touched" by long bonds, certainly anyone holding Total Bond Market is. And by the same token, just because some of us do buy 30-Yr TIPS, that surely doesn't have to mean that our FI portfolios overall are long term.

I'm in there with you Grok! As usual, I'll be funding/guaranteeing another 30-Yr rung of my little LMP. With all this volatility though, who knows where rates will be Thursday morning? It does look promising though, I agree.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by triceratop » Thu Feb 08, 2018 1:55 pm

Doc wrote:
Thu Feb 08, 2018 11:58 am
grok87 wrote:
Thu Feb 08, 2018 7:17 am
i'm hopeful that we might get to a 1.0% real yield at this auction.
We can put a Tesla beyond Mars but we can't get the real yield of a thirty above 2%. I don't Grok that. :D

(I know, I promised to stop harassing you about the thirty but with Musk's Mars feat this week I just couldn't resist.)
Do you know how close you got to what Musk actually said today about his largest quarterly loss ever? "If we can send a Roadster to the asteroid belt, we can probably solve Model 3 production.” :D
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by saltycaper » Thu Feb 08, 2018 2:02 pm

Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by jalbert » Thu Feb 08, 2018 2:05 pm

I wouldn't touch a 30 year bond instrument of any type now without an expected real yield of 2%. 
TIPs have deterministic real yields.
Index fund investor since 1987.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Chuck » Thu Feb 08, 2018 2:06 pm

saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need.
I agree for nominal bonds, but for TIPS, it seems somewhat reasonable since you're getting real return, plus coupons. You don't have to worry about unexpected inflation.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by jebmke » Thu Feb 08, 2018 2:10 pm

saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
I bought a lot of Tips at 3%+ real in 2008. If yields got that high again I would go out pretty far on the duration curve (not sure I'd go out 30).
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by saltycaper » Thu Feb 08, 2018 2:17 pm

Chuck wrote:
Thu Feb 08, 2018 2:06 pm
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need.
I agree for nominal bonds, but for TIPS, it seems somewhat reasonable since you're getting real return, plus coupons. You don't have to worry about unexpected inflation.
Well it's better than a nominal bond in this regard, but locking in 1% real for 30 years still isn't sufficient compensation for me for the risk along the way. The price fluctuation is too volatile, and I am not confident I would not need the money sooner. A portfolio of these makes for a duration that's too long for me unless there's something heavy on the short end to balance it out, but in that case I'd rather stick to the middle of yield curve anyway. The slightly extra compensation offered for going a lot longer is insufficient IMO.
Quod vitae sectabor iter?

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Carl53 » Thu Feb 08, 2018 2:29 pm

gasman wrote:
Thu Feb 08, 2018 7:55 am
Dudley wrote:
Thu Feb 08, 2018 7:52 am
No. But I'm drawn to the 5yr TIPS at >0.5%
yup. been nibbling in this range.
Just did a conversion into some at 0.5% yield that mature in April 2022.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Thu Feb 08, 2018 2:49 pm

saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
Perhaps if one tries to move away from an "investing" mindset to more of an "insuring" mindset, maybe it would be easier to understand.

Here is my mindset:
I have a good idea of how much money I need today, annually, to cover what I consider my "barebones income level", and fortunately, I can fairly confidently predict that when I'm 70 my SS will cover just about that amount. That makes me feel pretty good! But I'm a cautious sort of individual. Of course I have investments and I'll probably be fine with them, but once again, I am a cautious type, and nervous by nature, and I prefer to be less nervous. At 80, if I'm still around (as I damn well expect to be!) I'll probably annuitize a bit. But I'm looking for a little more long-term security, something truly safe and secure right now. I think a LMP of TIPS might be even safer than SS - who knows what might happen with SS? My LMP will cover 20% of my "barebones income level", and just like SS, it is COLA'd. Call it a "guaranteed, COLA'd supplementary income insurance policy", where the insurance company is not a GEICO or an AIG, but the US Treasury. I feel pretty good about building this little LMP over time, and makes me feel just a bit more secure about my future. And nota bene: I do NOT get hung up over what real coupon rates I end up getting! And price fluctuations over the years are simply irrelevant: It's the guaranteed, COLA'd return of principal that I am buying here! That and that alone is the insurance policy. The coupons are just gravy - yeah, pretty thin gravy at that, these days - and they just fall back into the overall investments hopper. So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by saltycaper » Thu Feb 08, 2018 3:03 pm

Angst wrote:
Thu Feb 08, 2018 2:49 pm

So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
I'm behind TIPS for LMP. In that case you've decided it's all you need, or in your specific example, X% of need. That would not be part of my "otherwise" qualification. So you pass the evaluation. :wink:

grok said he's going in more than usual due to the higher yield. Can't remember if he's LMP or not or how the "higher" yield affects his LMP calculation. I would think he would need less, not more, if LMP, but I'm sure there's different ways to go about this.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by saltycaper » Thu Feb 08, 2018 3:40 pm

jebmke wrote:
Thu Feb 08, 2018 2:10 pm
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
I bought a lot of Tips at 3%+ real in 2008. If yields got that high again I would go out pretty far on the duration curve (not sure I'd go out 30).
Missed your post initially. I would too if yields were so high throughout the curve that they would get me what I need for the fixed income portion of my portfolio. The 30 wasn't around back then. The 5 was higher than the 20, so the 30 might not have looked all that enticing by comparison.
Quod vitae sectabor iter?

Angst
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Thu Feb 08, 2018 4:20 pm

saltycaper wrote:
Thu Feb 08, 2018 3:03 pm
Angst wrote:
Thu Feb 08, 2018 2:49 pm

So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
I'm behind TIPS for LMP. In that case you've decided it's all you need, or in your specific example, X% of need. That would not be part of my "otherwise" qualification. So you pass the evaluation. :wink:

grok said he's going in more than usual due to the higher yield. Can't remember if he's LMP or not or how the "higher" yield affects his LMP calculation. I would think he would need less, not more, if LMP, but I'm sure there's different ways to go about this.
Thanks! I passed the evaluation. I have to think that grok too is satisfied with the expected return and cash flow he anticipates from this auction, but I do look forward to his explanation for buying a "somewhat larger amount than usual". :)
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by FIREchief » Thu Feb 08, 2018 4:39 pm

Angst wrote:
Thu Feb 08, 2018 2:49 pm
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
Perhaps if one tries to move away from an "investing" mindset to more of an "insuring" mindset, maybe it would be easier to understand.

Here is my mindset:
I have a good idea of how much money I need today, annually, to cover what I consider my "barebones income level", and fortunately, I can fairly confidently predict that when I'm 70 my SS will cover just about that amount. That makes me feel pretty good! But I'm a cautious sort of individual. Of course I have investments and I'll probably be fine with them, but once again, I am a cautious type, and nervous by nature, and I prefer to be less nervous. At 80, if I'm still around (as I damn well expect to be!) I'll probably annuitize a bit. But I'm looking for a little more long-term security, something truly safe and secure right now. I think a LMP of TIPS might be even safer than SS - who knows what might happen with SS? My LMP will cover 20% of my "barebones income level", and just like SS, it is COLA'd. Call it a "guaranteed, COLA'd supplementary income insurance policy", where the insurance company is not a GEICO or an AIG, but the US Treasury. I feel pretty good about building this little LMP over time, and makes me feel just a bit more secure about my future. And nota bene: I do NOT get hung up over what real coupon rates I end up getting! And price fluctuations over the years are simply irrelevant: It's the guaranteed, COLA'd return of principal that I am buying here! That and that alone is the insurance policy. The coupons are just gravy - yeah, pretty thin gravy at that, these days - and they just fall back into the overall investments hopper. So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
Great post. You've described exactly how I approach and consider TIPS. Nothing better for an LMP. It's all about the guaranteed future buying power. Coupons are just a nice (very) little bonus.
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 2/15: 1.0% yield?

Post by FIREchief » Thu Feb 08, 2018 4:41 pm

grok87 wrote:
Thu Feb 08, 2018 7:17 am
On thursday february 15th the treasury will auction 30 year tips.

Given that 29 year tips are currently trading on the secondary market at a real yield of 0.96% i'm hopeful that we might get to a 1.0% real yield at this auction.

I am planning to participate and for a somewhat larger amount than usual given the higher yields. Anyone else planning to participate?

Cheers,
Grok
The real yield curve for a 30 year just reached .99, so you may get your wish. :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 2/15: 1.0% yield?

Post by grok87 » Fri Feb 09, 2018 8:23 am

saltycaper wrote:
Thu Feb 08, 2018 3:03 pm
Angst wrote:
Thu Feb 08, 2018 2:49 pm

So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
I'm behind TIPS for LMP. In that case you've decided it's all you need, or in your specific example, X% of need. That would not be part of my "otherwise" qualification. So you pass the evaluation. :wink:

grok said he's going in more than usual due to the higher yield. Can't remember if he's LMP or not or how the "higher" yield affects his LMP calculation. I would think he would need less, not more, if LMP, but I'm sure there's different ways to go about this.
Yes this is for building my retirement LMP. I’m planning to go in at the auction for roughly double my normal thrice-annual amount.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by garlandwhizzer » Fri Feb 09, 2018 9:44 pm

I have no interest in a LMP because I don't think I can accurately define what my cost of living is going to be 30 years from now. A lot of unexpected things can happen to one's circumstances in 30 years. There are simply too many unforeseen variables that can over such a long time span seriously increase ones real cost of living way more than what we project today. You're also settling up front for a 1% real inflation adjusted yield over 30 years. It's essentially impossible to construct a balanced portfolio of quality bonds and broadly based index funds that doesn't produce dramatically better than 1% expected 30 year returns. Personally, I would not settle for that return even if it is totally safe and guaranteed. Each to his own.

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grok87
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Sat Feb 10, 2018 9:29 am

garlandwhizzer wrote:
Fri Feb 09, 2018 9:44 pm
I have no interest in a LMP because I don't think I can accurately define what my cost of living is going to be 30 years from now. A lot of unexpected things can happen to one's circumstances in 30 years. There are simply too many unforeseen variables that can over such a long time span seriously increase ones real cost of living way more than what we project today. You're also settling up front for a 1% real inflation adjusted yield over 30 years. It's essentially impossible to construct a balanced portfolio of quality bonds and broadly based index funds that doesn't produce dramatically better than 1% expected 30 year returns. Personally, I would not settle for that return even if it is totally safe and guaranteed. Each to his own.

Garland Whizzer
Thanks for your thoughtful response. I guess i would quibble with your phrase "essentially impossible". It might be interesting to look at the example of Japan starting in say 1990.

cheers,
grok
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Sat Feb 10, 2018 9:36 am

FIREchief wrote:
Thu Feb 08, 2018 4:39 pm
Angst wrote:
Thu Feb 08, 2018 2:49 pm
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
Perhaps if one tries to move away from an "investing" mindset to more of an "insuring" mindset, maybe it would be easier to understand.

Here is my mindset:
I have a good idea of how much money I need today, annually, to cover what I consider my "barebones income level", and fortunately, I can fairly confidently predict that when I'm 70 my SS will cover just about that amount. That makes me feel pretty good! But I'm a cautious sort of individual. Of course I have investments and I'll probably be fine with them, but once again, I am a cautious type, and nervous by nature, and I prefer to be less nervous. At 80, if I'm still around (as I damn well expect to be!) I'll probably annuitize a bit. But I'm looking for a little more long-term security, something truly safe and secure right now. I think a LMP of TIPS might be even safer than SS - who knows what might happen with SS? My LMP will cover 20% of my "barebones income level", and just like SS, it is COLA'd. Call it a "guaranteed, COLA'd supplementary income insurance policy", where the insurance company is not a GEICO or an AIG, but the US Treasury. I feel pretty good about building this little LMP over time, and makes me feel just a bit more secure about my future. And nota bene: I do NOT get hung up over what real coupon rates I end up getting! And price fluctuations over the years are simply irrelevant: It's the guaranteed, COLA'd return of principal that I am buying here! That and that alone is the insurance policy. The coupons are just gravy - yeah, pretty thin gravy at that, these days - and they just fall back into the overall investments hopper. So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
Great post. You've described exactly how I approach and consider TIPS. Nothing better for an LMP. It's all about the guaranteed future buying power. Coupons are just a nice (very) little bonus.
Agree. i basically ignore the coupons as well. they help hedge the risk of retirement being > 30 years I guess...

Here's how i currently think about my LMP: I am using fictional numbers to illustrate the framework, which I call the "three-legged stool" approach:
https://www.investopedia.com/ask/answer ... rement.asp

Current Salary = $126 k.
Target retirement income @ 50% = $63 k per year
Target Social Security = $21 k per year
Target Employer Pension = $21 k per year
Target draw from Risk Portfolio = $21 k per year ---> Target Risk Portfolio = $600k at a safe withdrawal rate of 3.5%

Actual Social Security = $15 k ---> Need $6 k per year from LMP
Actual Employer Pension = $5 k ----> Need $16 k per year from LMP

Total LMP need = $22 k per year. Multiply by 30 for a 30 year TIPS ladder---> LMP = $660k.

So all this would imply a $600 k Risk portfolio and a $660k LMP.

cheers,
grok
Keep calm and Boglehead on. KCBO.

garlandwhizzer
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by garlandwhizzer » Sat Feb 10, 2018 11:47 am

garlandwhizzer wrote:
It's essentially impossible to construct a balanced portfolio of quality bonds and broadly based index funds that doesn't produce dramatically better than 1% expected 30 year returns
grok87 replied:
Thanks for your thoughtful response. I guess i would quibble with your phrase "essentially impossible". It might be interesting to look at the example of Japan starting in say 1990.
Good point, grok. My post used the word EXPECTED 30 year return and clearly expected does not mean guaranteed. If absolute certainty is sought, a TIPS ladder is an ideal way to produce a guaranteed level of real return over a given time frame. No argument there. I am simply willing to accept less than absolute certainty in trade for the strong probability of greater long term return. Others may rationally prefer absolute certainty depending on their circumstances.

Cheers,

Garland Whizzer

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by stlutz » Sat Feb 10, 2018 2:41 pm

Garland/Grok: At the end of the day I'm not seeing where you guys are that much different. Grok laid out having about a 50/50 stock/bond split. Garland argued for using "balanced" portfolio.

Seems like at the end of the day that the main differences are a) Whether to rebalance between stocks and bonds; b) Grok will likely have a rising equity allocation through retirement; c) Whether to use longer-duration TIPS vs. shorter-duration nominal bonds.

I don't think those differences result in a sharp difference in the income that can be generated.
Last edited by stlutz on Sat Feb 10, 2018 10:04 pm, edited 1 time in total.

grok87
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Sat Feb 10, 2018 10:02 pm

stlutz wrote:
Sat Feb 10, 2018 2:41 pm
Garland/Grok: At the end of the day I'm not seeing where you guys at that much different. Grok laid out having about a 50/50 stock/bond split. Garland argued for using "balanced" portfolio.

Seems like at the end of the day that the main differences are a) Whether to rebalance between stocks and bonds; b) Grok will likely have a rising equity allocation through retirement; c) Whether to use longer-duration TIPS vs. shorter-duration nominal bonds.

I don't think those differences result in a sharp difference in the income that can be generated.
interesting point!
Keep calm and Boglehead on. KCBO.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Yukon » Sun Feb 11, 2018 6:28 am

stlutz wrote:
Sat Feb 10, 2018 2:41 pm
Garland/Grok: At the end of the day I'm not seeing where you guys are that much different. Grok laid out having about a 50/50 stock/bond split. Garland argued for using "balanced" portfolio.

Seems like at the end of the day that the main differences are a) Whether to rebalance between stocks and bonds; b) Grok will likely have a rising equity allocation through retirement; c) Whether to use longer-duration TIPS vs. shorter-duration nominal bonds.

I don't think those differences result in a sharp difference in the income that can be generated.
Interesting.
I'd also be curious if their differences can also be explained in that Garland has a larger pension and/or portfolio where their ability and willingness to take risk is considerably higher? (Why worry about a 60k income floor when a pension will pay 60k and a 2% withdrawal rate would spit out an additional 60k?)
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grok87
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Sun Feb 11, 2018 12:56 pm

Yukon wrote:
Sun Feb 11, 2018 6:28 am
stlutz wrote:
Sat Feb 10, 2018 2:41 pm
Garland/Grok: At the end of the day I'm not seeing where you guys are that much different. Grok laid out having about a 50/50 stock/bond split. Garland argued for using "balanced" portfolio.

Seems like at the end of the day that the main differences are a) Whether to rebalance between stocks and bonds; b) Grok will likely have a rising equity allocation through retirement; c) Whether to use longer-duration TIPS vs. shorter-duration nominal bonds.

I don't think those differences result in a sharp difference in the income that can be generated.
Interesting.
I'd also be curious if their differences can also be explained in that Garland has a larger pension and/or portfolio where their ability and willingness to take risk is considerably higher? (Why worry about a 60k income floor when a pension will pay 60k and a 2% withdrawal rate would spit out an additional 60k?)
i think a lot of the LMP discussions that we have on this board- pro, anti, etc.- could be helped by talking about "framing".
https://en.wikipedia.org/wiki/Framing_e ... sychology)

The 3 legged-stool approach above is one common way people USED to think about retirement planning. It's faded away for many of us now that Employer pensions are a thing of the past. I guess i would ask the following questions:

1) If you have an employer pension that replaces 1/6 of your salary, would you really cash it in for a lump sum instead and invest in the markets? (in a balanced fund for example?)

2) If your answer is no, then why would you not advise someone without such a pension to "re-create it" by building a TIPS ladder or buying an annuity?

Personally i would love to buy a deferred "federally guaranteed" inflation-indexed annuity. But they don't exist. A Tips ladder is as good as I can do for now. At some point in my retirement i expect i will probably sell off some of my TIPS ladder and buy an annuity. Until then the market value of the tips ladder is a good hedge on the future cost of such an annuity...
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Yukon » Sun Feb 11, 2018 1:18 pm

grok87 wrote:
Sun Feb 11, 2018 12:56 pm
i think a lot of the LMP discussions that we have on this board- pro, anti, etc.- could be helped by talking about "framing".
https://en.wikipedia.org/wiki/Framing_e ... sychology)

The 3 legged-stool approach above is one common way people USED to think about retirement planning. It's faded away for many of us now that Employer pensions are a thing of the past. I guess i would ask the following questions:

1) If you have an employer pension that replaces 1/6 of your salary, would you really cash it in for a lump sum instead and invest in the markets? (in a balanced fund for example?)

2) If your answer is no, then why would you not advise someone without such a pension to "re-create it" by building a TIPS ladder or buying an annuity?

Personally i would love to buy a deferred "federally guaranteed" inflation-indexed annuity. But they don't exist. A Tips ladder is as good as I can do for now. At some point in my retirement i expect i will probably sell off some of my TIPS ladder and buy an annuity. Until then the market value of the tips ladder is a good hedge on the future cost of such an annuity...
Very well said!
Last edited by Yukon on Sun Feb 11, 2018 1:31 pm, edited 1 time in total.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Mon Feb 12, 2018 8:38 am

Yukon wrote:
Sun Feb 11, 2018 1:18 pm
grok87 wrote:
Sun Feb 11, 2018 12:56 pm
i think a lot of the LMP discussions that we have on this board- pro, anti, etc.- could be helped by talking about "framing".
https://en.wikipedia.org/wiki/Framing_e ... sychology)

The 3 legged-stool approach above is one common way people USED to think about retirement planning. It's faded away for many of us now that Employer pensions are a thing of the past. I guess i would ask the following questions:

1) If you have an employer pension that replaces 1/6 of your salary, would you really cash it in for a lump sum instead and invest in the markets? (in a balanced fund for example?)

2) If your answer is no, then why would you not advise someone without such a pension to "re-create it" by building a TIPS ladder or buying an annuity?

Personally i would love to buy a deferred "federally guaranteed" inflation-indexed annuity. But they don't exist. A Tips ladder is as good as I can do for now. At some point in my retirement i expect i will probably sell off some of my TIPS ladder and buy an annuity. Until then the market value of the tips ladder is a good hedge on the future cost of such an annuity...
Very well said!
Thanks
Keep calm and Boglehead on. KCBO.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Mon Feb 12, 2018 1:58 pm

FIREchief wrote:
Thu Feb 08, 2018 4:39 pm
Angst wrote:
Thu Feb 08, 2018 2:49 pm
saltycaper wrote:
Thu Feb 08, 2018 2:02 pm
Still can't fathom purchasing a 30-year bond unless I was confident both the return and cash flow offered by the bond is all I would need. Looking back 30 years and seeing where rates were, and looking back 30 years before that, I just think it's crazy for individuals to do it otherwise.
Perhaps if one tries to move away from an "investing" mindset to more of an "insuring" mindset, maybe it would be easier to understand.

Here is my mindset:
I have a good idea of how much money I need today, annually, to cover what I consider my "barebones income level", and fortunately, I can fairly confidently predict that when I'm 70 my SS will cover just about that amount. That makes me feel pretty good! But I'm a cautious sort of individual. Of course I have investments and I'll probably be fine with them, but once again, I am a cautious type, and nervous by nature, and I prefer to be less nervous. At 80, if I'm still around (as I damn well expect to be!) I'll probably annuitize a bit. But I'm looking for a little more long-term security, something truly safe and secure right now. I think a LMP of TIPS might be even safer than SS - who knows what might happen with SS? My LMP will cover 20% of my "barebones income level", and just like SS, it is COLA'd. Call it a "guaranteed, COLA'd supplementary income insurance policy", where the insurance company is not a GEICO or an AIG, but the US Treasury. I feel pretty good about building this little LMP over time, and makes me feel just a bit more secure about my future. And nota bene: I do NOT get hung up over what real coupon rates I end up getting! And price fluctuations over the years are simply irrelevant: It's the guaranteed, COLA'd return of principal that I am buying here! That and that alone is the insurance policy. The coupons are just gravy - yeah, pretty thin gravy at that, these days - and they just fall back into the overall investments hopper. So, even if you cannot imagine yourself thinking like this about your own needs, are you at least able to put yourself into a mindset where it might actually make a little sense to you? Or do you still think I'm just ("We're just", I'm not alone here after all!) nothing but "crazy"? :wink:
Great post. You've described exactly how I approach and consider TIPS. Nothing better for an LMP. It's all about the guaranteed future buying power. Coupons are just a nice (very) little bonus.
Thanks chief

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by ray.james » Mon Feb 12, 2018 2:14 pm

This thread is great read. Great posts by Angst and Grok. I will not buy tips yet but atleast I understand why folks are buying it and to treat them in portfolio.(and more clarity on what they area.) I have come full circle on I -bonds. May be tips too someday.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Doc » Mon Feb 12, 2018 5:11 pm

Since there are some new posters here I will restate what I have said before.

First, I have no disagreement with a 30 year inflation adjusted LMP.

But, with long term real rates at only about 1% compared to historical 2% to 3% I think that thirty year TIPS are too expensive. Instead of buying a thirty now I would buy a ten with the intention of rolling it twice in the next twenty years.

The problem with this approach is that it is not a set it and forget it plan.

With the ten currently at 0.8% and the thirty at 1.0% you are only giving up 0.2% by buying the ten now with the expectation of receiving 1% to 2% more for years 10 through 30.

Grok doesn't care because he is not putting a lot of emphasis on the coupon if I understand his approach correctly. That's OK also.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Mon Feb 12, 2018 6:45 pm

Doc wrote:
Mon Feb 12, 2018 5:11 pm
Since there are some new posters here I will restate what I have said before.

First, I have no disagreement with a 30 year inflation adjusted LMP.

But, with long term real rates at only about 1% compared to historical 2% to 3% I think that thirty year TIPS are too expensive. Instead of buying a thirty now I would buy a ten with the intention of rolling it twice in the next twenty years.

The problem with this approach is that it is not a set it and forget it plan.

With the ten currently at 0.8% and the thirty at 1.0% you are only giving up 0.2% by buying the ten now with the expectation of receiving 1% to 2% more for years 10 through 30.

Grok doesn't care because he is not putting a lot of emphasis on the coupon if I understand his approach correctly. That's OK also.

I'm not 100% in agreement here. To me, the problem with this ^ is that "problem" needs to be plural.
Can any of our new posters identify another one?

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Yukon » Mon Feb 12, 2018 7:18 pm

Angst wrote:
Mon Feb 12, 2018 6:45 pm
Doc wrote:
Mon Feb 12, 2018 5:11 pm
Since there are some new posters here I will restate what I have said before.

First, I have no disagreement with a 30 year inflation adjusted LMP.

But, with long term real rates at only about 1% compared to historical 2% to 3% I think that thirty year TIPS are too expensive. Instead of buying a thirty now I would buy a ten with the intention of rolling it twice in the next twenty years.

The problem with this approach is that it is not a set it and forget it plan.

With the ten currently at 0.8% and the thirty at 1.0% you are only giving up 0.2% by buying the ten now with the expectation of receiving 1% to 2% more for years 10 through 30.

Grok doesn't care because he is not putting a lot of emphasis on the coupon if I understand his approach correctly. That's OK also.

I'm not 100% in agreement here. To me, the problem with this ^ is that "problem" needs to be plural.
Can any of our new posters identify another one?
It's tough to ladder into another ten or twenty if they stop offering them. And if they do offer them who will guarantee they are worth an additional 1-2%? It's all increasing risk away from the guaranteed floor. I'd say Grok doesn't care because his emphasis is on the guaranteed part.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by triceratop » Mon Feb 12, 2018 7:21 pm

Angst wrote:
Mon Feb 12, 2018 6:45 pm
I'm not 100% in agreement here. To me, the problem with this ^ is that "problem" needs to be plural.
Can any of our new posters identify another one?
Similar to what Yukon points out there is no guarantee that future TIPS will be linked to CPI-U.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Angst » Mon Feb 12, 2018 7:48 pm

triceratop wrote:
Mon Feb 12, 2018 7:21 pm
Angst wrote:
Mon Feb 12, 2018 6:45 pm
I'm not 100% in agreement here. To me, the problem with this ^ is that "problem" needs to be plural.
Can any of our new posters identify another one?
Similar to what Yukon points out there is no guarantee that future TIPS will be linked to CPI-U.
Yes, thank you triceratop! That's a bird in the hand.

But just like Yukon said above, my biggest concern is that there is no guarantee that 10 years from now (let alone 20 years from now) new issue TIPS will even be for sale. But a 30 yr TIPS purchased today buys the LMP certainty and guarantee - it's a done deal. A 10 yr TIPS purchased today for a 30 yr liability is something quite a bit less than that.

However, I'll not deny that I have my own share of inconsistencies to confess. For example, I'm counting on new issue 30 yr TIPS coming out annually for the next 10 years in order to complete the final rungs of my sunset years. And on top of that, there are still a few problematic rungs out there that I'm missing which lack previously issued TIPS and will probably require a dose of Doc's kind of medicine to heal. Another one of my various shortcomings involves tinkering with things which sometimes I ought not tinker with, like my portfolio... (Bad Boglehead, bad!) And so in some ways, the idea of rolling those 10 yr TIPS Qyr for the next 20-something years sounds kinda fun actually. :)

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Mon Feb 12, 2018 8:17 pm

Angst wrote:
Mon Feb 12, 2018 7:48 pm
triceratop wrote:
Mon Feb 12, 2018 7:21 pm
Angst wrote:
Mon Feb 12, 2018 6:45 pm
I'm not 100% in agreement here. To me, the problem with this ^ is that "problem" needs to be plural.
Can any of our new posters identify another one?
Similar to what Yukon points out there is no guarantee that future TIPS will be linked to CPI-U.
Yes, thank you triceratop! That's a bird in the hand.

But just like Yukon said above, my biggest concern is that there is no guarantee that 10 years from now (let alone 20 years from now) new issue TIPS will even be for sale. But a 30 yr TIPS purchased today buys the LMP certainty and guarantee - it's a done deal. A 10 yr TIPS purchased today for a 30 yr liability is something quite a bit less than that.

However, I'll not deny that I have my own share of inconsistencies to confess. For example, I'm counting on new issue 30 yr TIPS coming out annually for the next 10 years in order to complete the final rungs of my sunset years. And on top of that, there are still a few problematic rungs out there that I'm missing which lack previously issued TIPS and will probably require a dose of Doc's kind of medicine to heal. Another one of my various shortcomings involves tinkering with things which sometimes I ought not tinker with, like my portfolio... (Bad Boglehead, bad!) And so in some ways, the idea of rolling those 10 yr TIPS Qyr for the next 20-something years sounds kinda fun actually. :)
Yukon wrote:
Mon Feb 12, 2018 7:18 pm
It's tough to ladder into another ten or twenty if they stop offering them. And if they do offer them who will guarantee they are worth an additional 1-2%? It's all increasing risk away from the guaranteed floor. I'd say Grok doesn't care because his emphasis is on the guaranteed part.
So here's another thing to think about. If one's eventual goal is to at least partly annuitize the tips ladder, then duration matching is useful. in other words you want the average maturity of your tips ladder to somewhat closely match that of the annuity you are hoping to buy. This helps it be a better hedge on the price you will end up paying for the annuity...

this is one of the reasons i focus on 30 year tips. i don't have enough tax advantaged space (and i think tips belong in tax advantaged). So i end up buying ibonds to supplement things. That already drags down the duration of my LMP.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by Doc » Tue Feb 13, 2018 8:26 am

Re: 30's not available. Secondary market folks. :wink:
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by FIREchief » Tue Feb 13, 2018 10:53 am

Doc wrote:
Tue Feb 13, 2018 8:26 am
Re: 30's not available. Secondary market folks. :wink:
Thanks. I still use auctions quite a bit, but the secondary market is easy, quick and cheap. :sharebeer
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by MtnBiker » Tue Feb 13, 2018 11:41 am

grok87 wrote:
Mon Feb 12, 2018 8:17 pm

So here's another thing to think about. If one's eventual goal is to at least partly annuitize the tips ladder, then duration matching is useful. in other words you want the average maturity of your tips ladder to somewhat closely match that of the annuity you are hoping to buy. This helps it be a better hedge on the price you will end up paying for the annuity...
Would you be so kind as to explain what you mean by duration matching the planned purchase of an annuity? Perhaps you could illustrate how this is done with an example. Suppose I was planning to purchase a SPIA in 2038. What TIPS bond(s) should I buy today to fund that purchase? (2038 is in the TIPS gap.)

I don't know how to evaluate the duration of such an annuity, but I will be 85 in 2038 so my life expectancy would be fairly short.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Tue Feb 13, 2018 4:10 pm

If you are planning to participate in the auction this Thursday you may want a sense of how much each $1000 tips bond could cost. For example if you are cutting it close with the amount of cash you have.

My belief is that the max cost per $1,000 bond at This auction would be $1,000.36.

How did I get that?

A) at new-issue auctions like this one (ie. Not reopenings) as long as the interest rate is positive the treasury will issue at par or a discount. So the unadjusted price will start at $1,000.

B) the index-ratio for this auction has been published at 0.99973. So the index-adjusted price would be at most $999.73.

C) the last adjustment is to add accrued interest. That hasn’t been published yet as it depends on the coupon. Last year the accrued interest was $0.31423 per $1,000 based on a 7/8% coupon. The coupon could be a little higher this year but not much. To be safe let’s double this amount to 0.63.

D) finally 999.73 + 0.63 = $1,000.36.

So for example if you want to buy 10 bonds or $10,000 worth of principle you should make sure you have at least $10,003.60 in your account.

Cheers,
Keep calm and Boglehead on. KCBO.

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by FIREchief » Tue Feb 13, 2018 4:14 pm

grok87 wrote:
Tue Feb 13, 2018 4:10 pm
If you are planning to participate in the auction this Thursday you may want a sense of how much each $1000 tips bond could cost. For example if you are cutting it close with the amount of cash you have.

My belief is that the max cost per $1,000 bond at This auction would be $1,000.36.

How did I get that?

A) at new-issue auctions like this one (ie. Not reopenings) as long as the interest rate is positive the treasury will issue at par or a discount. So the unadjusted price will start at $1,000.

B) the index-ratio for this auction has been published at 0.99973. So the index-adjusted price would be at most $999.73.

C) the last adjustment is to add accrued interest. That hasn’t been published yet as it depends on the coupon. Last year the accrued interest was $0.31423 per $1,000 based on a 7/8% coupon. The coupon could be a little higher this year but not much. To be safe let’s double this amount to 0.63.

D) finally 999.73 + 0.63 = $1,000.36.

So for example if you want to buy 10 bonds or $10,000 worth of principle you should make sure you have at least $10,003.60 in your account.

Cheers,
Thanks grok! Interesting approach. I know you're being conservative, but for the accrued interest to be as you have illustrated, wouldn't that 30 year TIPS have to auction at a real rate of 1.75% or more? Oh, if only it were true! 8-)
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by saltycaper » Tue Feb 13, 2018 4:21 pm

grok87 wrote:
Tue Feb 13, 2018 4:10 pm

So for example if you want to buy 10 bonds or $10,000 worth of principle you should make sure you have at least $10,003.60 in your account.
Wouldn't that be at most? :wink:

I've always had more than enough in my account, so I don't know how this works, but...

At Fido, I think you just need $1,000 per bond to place the order. Can't you just do that and then top off any difference before settlement?
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by FIREchief » Tue Feb 13, 2018 5:22 pm

Initial auctions are pretty straightforward. Reopenings can get a bit trickier if rates have dropped since the initial offering. In that case, the initial coupon will remain, but you'll pay a premium for the "now higher than market" coupon.

A similar situation occurred when five year TIPS were auctioning for around zero percent. The minimum coupon is 1/8%, so a premium was paid in those situations even on initial auctions.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Tue Feb 13, 2018 7:29 pm

MtnBiker wrote:
Tue Feb 13, 2018 11:41 am
grok87 wrote:
Mon Feb 12, 2018 8:17 pm

So here's another thing to think about. If one's eventual goal is to at least partly annuitize the tips ladder, then duration matching is useful. in other words you want the average maturity of your tips ladder to somewhat closely match that of the annuity you are hoping to buy. This helps it be a better hedge on the price you will end up paying for the annuity...
Would you be so kind as to explain what you mean by duration matching the planned purchase of an annuity? Perhaps you could illustrate how this is done with an example. Suppose I was planning to purchase a SPIA in 2038. What TIPS bond(s) should I buy today to fund that purchase? (2038 is in the TIPS gap.)

I don't know how to evaluate the duration of such an annuity, but I will be 85 in 2038 so my life expectancy would be fairly short.
personally i'm planning to ladder out my tips to age 95. if you take this approach you could buy today a ladder of 11 tips of maturity 20 years out to 30 years. so say $1k of tips maturity in each of the years 2028, 2029, 2030...2038.

then in 20 years you will have a ladder of tips maturing in 0,1, 2... and 10 years. that would possibly match the average maturity/duration of the annuity that you would be buying at that point.

does that make sense?

cheers,
grok
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by grok87 » Tue Feb 13, 2018 7:31 pm

FIREchief wrote:
Tue Feb 13, 2018 4:14 pm
grok87 wrote:
Tue Feb 13, 2018 4:10 pm
If you are planning to participate in the auction this Thursday you may want a sense of how much each $1000 tips bond could cost. For example if you are cutting it close with the amount of cash you have.

My belief is that the max cost per $1,000 bond at This auction would be $1,000.36.

How did I get that?

A) at new-issue auctions like this one (ie. Not reopenings) as long as the interest rate is positive the treasury will issue at par or a discount. So the unadjusted price will start at $1,000.

B) the index-ratio for this auction has been published at 0.99973. So the index-adjusted price would be at most $999.73.

C) the last adjustment is to add accrued interest. That hasn’t been published yet as it depends on the coupon. Last year the accrued interest was $0.31423 per $1,000 based on a 7/8% coupon. The coupon could be a little higher this year but not much. To be safe let’s double this amount to 0.63.

D) finally 999.73 + 0.63 = $1,000.36.

So for example if you want to buy 10 bonds or $10,000 worth of principle you should make sure you have at least $10,003.60 in your account.

Cheers,
Thanks grok! Interesting approach. I know you're being conservative, but for the accrued interest to be as you have illustrated, wouldn't that 30 year TIPS have to auction at a real rate of 1.75% or more? Oh, if only it were true! 8-)
well the other variable could be the number of days of accrued interest. i think sometimes that can vary, depending on holiday etc.
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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by MtnBiker » Tue Feb 13, 2018 8:41 pm

grok87 wrote:
Tue Feb 13, 2018 7:29 pm
personally i'm planning to ladder out my tips to age 95. if you take this approach you could buy today a ladder of 11 tips of maturity 20 years out to 30 years. so say $1k of tips maturity in each of the years 2028, 2029, 2030...2038.

then in 20 years you will have a ladder of tips maturing in 0,1, 2... and 10 years. that would possibly match the average maturity/duration of the annuity that you would be buying at that point.

does that make sense?

cheers,
grok
I think I understand what you are suggesting. At the time I was to buy the annuity, I would have in place a residual 10 year ladder of 11 tips, with an average duration of about 5 years. That residual ladder would be sold and used to purchase the annuity, which would have a similar expected average duration.

What I don't yet understand is why (a) selling tips with an average duration to 5 years to buy an annuity (matching the duration of the annuity) is better than (b) having a single tips that matures in the year that the annuity is to be purchased (liability matching). In case (b) I know with reasonable certainty what real dollars will be available to buy the annuity. In case (a), the amount of money available to buy the annuity will depend on the direction of interest rates in the interim. I may have more money than in case (b), but I also may have less. I believe the cost of the annuity is insensitive to interest rates, so if interest rates rise in case (a) I may not be able to buy as large of an annuity.

I am thinking of the cost of the annuity as a future liability that I would like to fund with an inflation-indexed bond. If I buy a bond (or bonds) that matures (on average) five years after the date when I need the money, am I not introducing unnecessary interest rate risk? Am I missing something?

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Re: 30 yr tips auction 2/15: 1.0% yield?

Post by MtnBiker » Tue Feb 13, 2018 9:22 pm

saltycaper wrote:
Tue Feb 13, 2018 4:21 pm
At Fido, I think you just need $1,000 per bond to place the order. Can't you just do that and then top off any difference before settlement?
Haven't tried it, so not sure, but according to

viewtopic.php?t=47661#p626112

at Vanguard you can place the auction order without any money in your settlement fund.
You need to have money available to move, however you do not need to have the money in a money market prior to your purchase. It just needs to be there by settlement.

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