30 yr TIPs auction: Oct. 18: 1.2% real yield?

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grok87
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30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 8:52 am

This thursday the treasury will be auctioning 30 year tips. Since this is a re-opening, we can look to the secondary market yield of 1.19% for guidance as to what the expected auction real yield might be. I'm hoping we get to at least 1.2% at thursday's auction.

I am planning to buy. Anyone else participating in this auction?

cheers,
grok
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garlandwhizzer
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by garlandwhizzer » Sun Oct 14, 2018 1:49 pm

Not yet. When it gets to 2%, I'll consider it seriously.

Garland Whizzer

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by jebmke » Sun Oct 14, 2018 2:30 pm

Still got a ways to go for me. When 10-15 years get north of 1.5% I might take a look.
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: Oct. 18: 1.2% real yield?

Post by willthrill81 » Sun Oct 14, 2018 3:48 pm

IIRC, the '4% rule' can be guaranteed with a 1.2% real yield. So TIPS are getting closer to offering this (although it's not possible to set up a 30 year TIPS ladder at one point in time, to my knowledge). Of course, that would be locking in some of the lowest historic rates for a balanced portfolio in history, but many crave surety at the expense of higher returns. If this was only used for anticipated essential spending, something like a LMP, I can see this being a reasonable course of action.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by gmaynardkrebs » Sun Oct 14, 2018 4:47 pm

1.5% I start buying, 2%, I'm all in. I don't expect to see the latter for a long time, if ever.

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JoMoney
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by JoMoney » Sun Oct 14, 2018 4:56 pm

Nope, bond yields still not that attractive to me.
If i'm reading this right: Daily Treasury Real Yield Curve Rates
even 5 year TIPS appear to be yielding over 1% , so unless I was planning on building a very long-term ladder, and had especially dismal outlook on the future, locking in for 30 years now doesn't sound especially appealing.

I am waiting to see what the Series I savings bond rate will be in November. I love I bonds as an emergency fund.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Angst
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Sun Oct 14, 2018 5:17 pm

Hi grok,
I'm in too, as usual. Just filling out this year's rung on the ladder, building my little LMP. It's been entertaining to follow rates over the last few weeks; especially the slope. And that little equity burp last week wasn't too much of a surprise in that context, seems to me. I suppose rates will settle down a bit, at least slowing their ascent, and stocks will resume rising as well for the time being.

Or not! 8-)
I'm fairly chill about it all. It's interesting to watch.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:27 pm

Angst wrote:
Sun Oct 14, 2018 5:17 pm
Hi grok,
I'm in too, as usual. Just filling out this year's rung on the ladder, building my little LMP. It's been entertaining to follow rates over the last few weeks; especially the slope. And that little equity burp last week wasn't too much of a surprise in that context, seems to me. I suppose rates will settle down a bit, at least slowing their ascent, and stocks will resume rising as well for the time being.

Or not! 8-)
I'm fairly chill about it all. It's interesting to watch.
Hi Angst,
yep, that's the way i feel about it as well. just building my LMP tips ladder one rung at a time.
Even though rates are up, break-even inflation is not (30 year bei =2.14%). so no sign yet that we are paying over the odds for inflation protection.
cheers,
grok
Keep calm and Boglehead on. KCBO.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:29 pm

garlandwhizzer wrote:
Sun Oct 14, 2018 1:49 pm
Not yet. When it gets to 2%, I'll consider it seriously.

Garland Whizzer
2% would be nice. reminds me of this post back in 2011
viewtopic.php?t=64679&start=50
"30 year TIPs yield at 1.98%- back up the truck, beep, beep.."
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grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:30 pm

willthrill81 wrote:
Sun Oct 14, 2018 3:48 pm
IIRC, the '4% rule' can be guaranteed with a 1.2% real yield. So TIPS are getting closer to offering this (although it's not possible to set up a 30 year TIPS ladder at one point in time, to my knowledge). Of course, that would be locking in some of the lowest historic rates for a balanced portfolio in history, but many crave surety at the expense of higher returns. If this was only used for anticipated essential spending, something like a LMP, I can see this being a reasonable course of action.
yep mine is for LMP purposes.
Keep calm and Boglehead on. KCBO.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:32 pm

jebmke wrote:
Sun Oct 14, 2018 2:30 pm
Still got a ways to go for me. When 10-15 years get north of 1.5% I might take a look.
the last time 10 year tips yield was at 1.5% was 2010
https://fred.stlouisfed.org/series/DFII10
Keep calm and Boglehead on. KCBO.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:32 pm

JoMoney wrote:
Sun Oct 14, 2018 4:56 pm
Nope, bond yields still not that attractive to me.
If i'm reading this right: Daily Treasury Real Yield Curve Rates
even 5 year TIPS appear to be yielding over 1% , so unless I was planning on building a very long-term ladder, and had especially dismal outlook on the future, locking in for 30 years now doesn't sound especially appealing.

I am waiting to see what the Series I savings bond rate will be in November. I love I bonds as an emergency fund.
i like ibonds too. too bad the limit is $10k per year.
Keep calm and Boglehead on. KCBO.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Sun Oct 14, 2018 5:34 pm

gmaynardkrebs wrote:
Sun Oct 14, 2018 4:47 pm
1.5% I start buying, 2%, I'm all in. I don't expect to see the latter for a long time, if ever.
yep i also think the days of 2% yield are gone. but never say never i suppose.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by willthrill81 » Sun Oct 14, 2018 10:26 pm

grok87 wrote:
Sun Oct 14, 2018 5:34 pm
gmaynardkrebs wrote:
Sun Oct 14, 2018 4:47 pm
1.5% I start buying, 2%, I'm all in. I don't expect to see the latter for a long time, if ever.
yep i also think the days of 2% yield are gone. but never say never i suppose.
It's possible. The yields on Japanese 10 year bonds fell below 2% in 1998 and haven't breached that level since. They've been below 1% since 2011.

I find it amusing and somewhat alarming that people think that interest rates in the U.S. are destined to rise back up to some certain rate. I'm sure that many Japanese investors felt the same way 20 years ago.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Mon Oct 15, 2018 6:54 am

willthrill81 wrote:
Sun Oct 14, 2018 10:26 pm
grok87 wrote:
Sun Oct 14, 2018 5:34 pm
gmaynardkrebs wrote:
Sun Oct 14, 2018 4:47 pm
1.5% I start buying, 2%, I'm all in. I don't expect to see the latter for a long time, if ever.
yep i also think the days of 2% yield are gone. but never say never i suppose.
It's possible. The yields on Japanese 10 year bonds fell below 2% in 1998 and haven't breached that level since. They've been below 1% since 2011.

I find it amusing and somewhat alarming that people think that interest rates in the U.S. are destined to rise back up to some certain rate. I'm sure that many Japanese investors felt the same way 20 years ago.
Agree.
I think it’s a well documented behavioral bias known as anchoring.

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by gmaynardkrebs » Mon Oct 15, 2018 8:12 am

grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by jebmke » Mon Oct 15, 2018 8:17 am

willthrill81 wrote:
Sun Oct 14, 2018 10:26 pm
I find it amusing and somewhat alarming that people think that interest rates in the U.S. are destined to rise back up to some certain rate. I'm sure that many Japanese investors felt the same way 20 years ago.
I didn't take that from any of the posts.
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: Oct. 18: 1.2% real yield?

Post by willthrill81 » Mon Oct 15, 2018 9:17 am

jebmke wrote:
Mon Oct 15, 2018 8:17 am
willthrill81 wrote:
Sun Oct 14, 2018 10:26 pm
I find it amusing and somewhat alarming that people think that interest rates in the U.S. are destined to rise back up to some certain rate. I'm sure that many Japanese investors felt the same way 20 years ago.
I didn't take that from any of the posts.
None of the posts in this thread imply that, but there are many others in other threads that clearly do.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Mon Oct 15, 2018 12:09 pm

gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
Good points.
What level of long term real interest rates do you think is the new normal then?
Keep calm and Boglehead on. KCBO.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Mon Oct 15, 2018 2:01 pm

gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am
willthrill81 wrote:
Sun Oct 14, 2018 10:26 pm
I find it amusing and somewhat alarming that people think that interest rates in the U.S. are destined to rise back up to some certain rate. I'm sure that many Japanese investors felt the same way 20 years ago.
Agree.
I think it’s a well documented behavioral bias known as anchoring.

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
I'm on the same page here. I'm content to assume we don't really know enough to be confident about what rates will do in the long run, let alone most of the near term as well. I think the yield curve will always be the "best" indicator of what we're in store for, but we all know that it changes over time. Also, not explicitly mentioned by gmkrebs but relevant is the potential for unexpected side effects of future global warming. To me it's all way too "big" to confidently model for its full financial implications.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by KJVanguard » Mon Oct 15, 2018 3:31 pm

No way am I willing to lock myself into only 1.2% real till the time I'm 75.

I fondly recall 2000 when I got 10-year TIPS at 4.37%. What we now call the good old days. I don't know how many bought TIPS back them, as I recall everyone buying the NASDAQ 100 at that time and telling me how I was too dumb to understand how the Internet was going to change the world. Those fools went away as fast as their net worth did.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by David Jay » Mon Oct 15, 2018 6:01 pm

I’m being tempted by the 5 year at 1%.

Inflation protection for the final years of self-funding all living expenses. Buy @ 62, 63 and 64 for spending at ages 67, 68 and 69.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Angst
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Mon Oct 15, 2018 6:15 pm

David Jay wrote:
Mon Oct 15, 2018 6:01 pm
I’m being tempted by the 5 year at 1%.

Inflation protection for the final years of self-funding all living expenses. Buy @ 62, 63 and 64 for spending at ages 67, 68 and 69.
Makes sense to me. :)

I'm also thinking that the fixed rate on I Bonds will likely move up in November from the 0.3% it's at presently. How high? 0.5% would be very nice, no telling though. I don't believe I've ever heard of any reliable formula for predicting it.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Tue Oct 16, 2018 7:12 pm

tomorrow (wednesday) is the last day to place auction orders (there may be a short window thursday morning.

the 30 year tips bonds are trading on the secondary at 95.30. if the auction price is the same (could be higher or lower) you will need roughly $976.58 for each bond, since the index factor is roughly 1.0225 and the accrued interest per thousand is $2.14 [953.0*1.0225+2.14 = 976.58].

cheers,
grok
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by gmaynardkrebs » Tue Oct 16, 2018 9:50 pm

It's at 1.19% now. Even if I knew rates would never be that high again, I wouldn't be interested. There have to be better places to put your money. Even for a TIPS fan like me.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Doc » Wed Oct 17, 2018 10:34 am

gmaynardkrebs wrote:
Tue Oct 16, 2018 9:50 pm
It's at 1.19% now. Even if I knew rates would never be that high again, I wouldn't be interested. There have to be better places to put your money. Even for a TIPS fan like me.
In Swedroe's "Winning Bond Strategy" March 2006 p 225 he recommended 100% TIPS at > 3% real yield and 0% at < 1.5% for the ten year.

(Percent is TIPS vs. nominal fixed-income.)

Of course that was then and this is now. Lehman still existed back then.
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Wed Oct 17, 2018 7:04 pm

It's looking like you might get you wish grok. The Treasury yield curve for today ended up at 1.21%
I'm pleased. :happy

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Thu Oct 18, 2018 12:35 pm

Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by beardsworth » Thu Oct 18, 2018 1:18 pm

grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Thu Oct 18, 2018 4:24 pm

beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
I think the shorter term tips of around 5-10 years are yielding close to 1%. Why does the coupon matter?
Keep calm and Boglehead on. KCBO.

beardsworth
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by beardsworth » Thu Oct 18, 2018 4:36 pm

grok87 wrote:
Thu Oct 18, 2018 4:24 pm
beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
I think the shorter term tips of around 5-10 years are yielding close to 1%. Why does the coupon matter?
Since TIPS issued in various past years may be maturing in the same future year, I was simply using the coupons to further identify them. But thank you, I think.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Thu Oct 18, 2018 9:18 pm

beardsworth wrote:
Thu Oct 18, 2018 4:36 pm
grok87 wrote:
Thu Oct 18, 2018 4:24 pm
beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
I think the shorter term tips of around 5-10 years are yielding close to 1%. Why does the coupon matter?
Since TIPS issued in various past years may be maturing in the same future year, I was simply using the coupons to further identify them. But thank you, I think.
beardsworth, if one is building a LMP, which is what I am doing, I think the ideal coupon is "0%", i.e. literally, a zero coupon bond, a zero coupon TIPS. That's not to say that I don't want the highest "yield" possible. Higher is good, but the bottom line is that I want my present day purchase to at least be equaled in real value at maturity. Additional coupons paid out every year complicate things.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by gmaynardkrebs » Thu Oct 18, 2018 9:29 pm

beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
Coupon doesn't matter, you will pay a price that gives you the current interest for the duration. Older TIPs will have a bond factor above 100, reflecting inflation adjustment to principal over the years, That means somewhat less protection from deflation.

desiderium
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by desiderium » Fri Oct 19, 2018 12:59 am

gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
Yes, sobering, builds on Thomas Piketty's arguments I think.

grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Fri Oct 19, 2018 6:08 am

Angst wrote:
Thu Oct 18, 2018 9:18 pm
beardsworth wrote:
Thu Oct 18, 2018 4:36 pm
grok87 wrote:
Thu Oct 18, 2018 4:24 pm
beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
I think the shorter term tips of around 5-10 years are yielding close to 1%. Why does the coupon matter?
Since TIPS issued in various past years may be maturing in the same future year, I was simply using the coupons to further identify them. But thank you, I think.
beardsworth, if one is building a LMP, which is what I am doing, I think the ideal coupon is "0%", i.e. literally, a zero coupon bond, a zero coupon TIPS. That's not to say that I don't want the highest "yield" possible. Higher is good, but the bottom line is that I want my present day purchase to at least be equaled in real value at maturity. Additional coupons paid out every year complicate things.
Agree. I wish someone would create tips strips.
Keep calm and Boglehead on. KCBO.

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Fri Oct 19, 2018 6:10 am

gmaynardkrebs wrote:
Thu Oct 18, 2018 9:29 pm
beardsworth wrote:
Thu Oct 18, 2018 1:18 pm
grok87 wrote:
Thu Oct 18, 2018 12:35 pm
Auction yield was 1.235% which I think is about 2.5 bps higher than where the secondary was trading just before auction. I.e. the auction”tailed” massively I.e. the market hates long term tips right now.

I deployed all the spare cash I could. Wish I had bought more.
grok, always interested to read your comments on this subject.

I wasn't sure whether to ask the following in a PM to you, or post it here on the public forum, since I don't mean to draw your thread seriously off-topic. This question does relate to TIPS, but not specifically to the 30-year. Then I thought there was a chance other readers might be interested, too, so I'll ask it here.

For purposes of starting to fill a just-begun ladder, what's your view on some of the shorter-term TIPS, which can currently be bought at a discount below face value, for example, the 2027 maturities (coupon 0.375%) or the April 2023 (coupon 0.625%)?

(However, I can't summon any enthusiasm for some of the TIPS issued just after the last financial crisis, with coupons of just 0.125%.)

Thanks.
Coupon doesn't matter, you will pay a price that gives you the current interest for the duration. Older TIPs will have a bond factor above 100, reflecting inflation adjustment to principal over the years, That means somewhat less protection from deflation.
Agree.

The main bonds that i am aware of where coupon/price is a factor are munis. Because there are weird tax quirks about buying munis at a discount to par.
Keep calm and Boglehead on. KCBO.

grok87
Posts: 8453
Joined: Tue Feb 27, 2007 9:00 pm

Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Fri Oct 19, 2018 6:11 am

desiderium wrote:
Fri Oct 19, 2018 12:59 am
gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
Yes, sobering, builds on Thomas Piketty's arguments I think.
Going to have to read that book...
Keep calm and Boglehead on. KCBO.

Valuethinker
Posts: 36348
Joined: Fri May 11, 2007 11:07 am

Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Valuethinker » Fri Oct 19, 2018 7:01 am

grok87 wrote:
Fri Oct 19, 2018 6:11 am
desiderium wrote:
Fri Oct 19, 2018 12:59 am
gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
Yes, sobering, builds on Thomas Piketty's arguments I think.
Going to have to read that book...
It's one of the "most owned and not read" books out there (with Kindle, they can now track that, which embarrasses most of us ;-)).

It's almost better to seek out presentations made by the writer, and critiques of his work (supportive or refuting). Because the actual book itself is doorstop sized intimidating.

I am rereading histories of the 1920s and 1930s because I think we have moved on a phase - a slightly esoteric economic argument has moved on to a very real one, about real power on the street. It's become about history and the history of politics -- economists are tidied off to their corner. Time froze for a while, but the clock is speeding up again.

I do wish JM Keynes were still around - we need him, and we need him muchly. In fact his biographer, Lord Skidelsky, has written a book "Keynes: the Return of the Master".

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by #Cruncher » Fri Oct 19, 2018 7:28 am

Angst wrote:
Thu Oct 18, 2018 9:18 pm
... if one is building a LMP [Liability Matching Portfolio], which is what I am doing, I think the ideal coupon is "0%", ... the bottom line is that I want my present day purchase to at least be equaled in real value at maturity. Additional coupons paid out every year complicate things.
Indeed! According to yesterday's auction results PDF file, buyers paid $94.24 to have 100 of today's (actually 10/31/2018) dollars at maturity in 29+1/3 years. If the TIPS had a 0% coupon instead of 1%, at the same 1.235% yield to maturity, the price would have been only $69.76 (100 / 1.01235 ^ 29.333). Thus, over a quarter of yesterday's purchase doesn't contribute to the final principal payment.

This isn't a problem if all the TIPS constituting the LMP are purchased at one time. Then, the coupons can be taken into account so that the total of coupons and maturing principal equal a desired constant dollar amount. (E.g., my TIPS Ladder Builder spreadsheet does this.) But the presence of coupons is a complication when the LMP is built year-by-year as Grok is doing.

grok87 wrote:
Fri Oct 19, 2018 6:08 am
I wish someone would create tips strips.
The Treasury allows TIPS to be broken down into STRIPS, but so far the marketplace has not done so. Besides simplifying life for Grok, the existence of stripped coupon TIPS would allow buyers to fill the gaps when no regular TIPS currently mature: 2030, 2031, and 2033-2039. Without them, if the Treasury maintains its current policy of issuing only 5, 10, and 30-year TIPS, ones maturing in 2039 won't be available for another eleven years. Eventually there may be enough TIPS maturing 2040 and later to make it worthwhile for some finanacial institution to begin stripping TIPS.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by gmaynardkrebs » Fri Oct 19, 2018 7:38 am

#Cruncher wrote:
Fri Oct 19, 2018 7:28 am
Angst wrote:
Thu Oct 18, 2018 9:18 pm
... if one is building a LMP [Liability Matching Portfolio], which is what I am doing, I think the ideal coupon is "0%", ... the bottom line is that I want my present day purchase to at least be equaled in real value at maturity. Additional coupons paid out every year complicate things.
Indeed! According to yesterday's auction results PDF file, buyers paid $94.24 to have 100 of today's (actually 10/31/2018) dollars at maturity in 29+1/3 years. If the TIPS had a 0% coupon instead of 1%, at the same 1.235% yield to maturity, the price would have been only $69.76 (100 / 1.01235 ^ 29.333). Thus, over a quarter of yesterday's purchase doesn't contribute to the final principal payment.

This isn't a problem if all the TIPS constituting the LMP are purchased at one time. Then, the coupons can be taken into account so that the total of coupons and maturing principal equal a desired constant dollar amount. (E.g., my TIPS Ladder Builder spreadsheet does this.) But the presence of coupons is a complication when the LMP is built year-by-year as Grok is doing.
Would using the coupon payments to purchase the same TIPS, effectively "reinvesting" the coupon in the same issuance, be a close substitute for strips?

Angst
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by Angst » Fri Oct 19, 2018 8:25 am

#Cruncher wrote:
Fri Oct 19, 2018 7:28 am
Indeed! According to yesterday's auction results PDF file, buyers paid $94.24 to have 100 of today's (actually 10/31/2018) dollars at maturity in 29+1/3 years. If the TIPS had a 0% coupon instead of 1%, at the same 1.235% yield to maturity, the price would have been only $69.76 (100 / 1.01235 ^ 29.333). Thus, over a quarter of yesterday's purchase doesn't contribute to the final principal payment.

This isn't a problem if all the TIPS constituting the LMP are purchased at one time. Then, the coupons can be taken into account so that the total of coupons and maturing principal equal a desired constant dollar amount. (E.g., my TIPS Ladder Builder spreadsheet does this.) But the presence of coupons is a complication when the LMP is built year-by-year as Grok is doing.

Thank you for your #Crunching! $6,976 yesterday for $10,000 in today's purchasing power 30 years out 29 years and 4 months out would certainly have been preferable. And it's so elegant and simple.

grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Fri Oct 19, 2018 3:38 pm

Valuethinker wrote:
Fri Oct 19, 2018 7:01 am
grok87 wrote:
Fri Oct 19, 2018 6:11 am
desiderium wrote:
Fri Oct 19, 2018 12:59 am
gmaynardkrebs wrote:
Mon Oct 15, 2018 8:12 am
grok87 wrote:
Mon Oct 15, 2018 6:54 am

To be fair, it’s not as if bond yields have no natural level. But the natural level is I think roughly related to gdp growth. Ie I think long term real rates might be some function of long term real gdp growth. And I don’t think that level is lower than it used to be.
I respectfully disagree. Aging population, increased monopoly power, mal-distribution of income toward non-spenders (ie, the .1%), "owning your own home" not what it used to be, financialization and rent seeking replacing productive pursuits, buybacks instead of investment, twilight of invention (is the iphone/facebook really at the level of electrification, the telephone, airplanes, the internal combustion engine etc)....,
Yes, sobering, builds on Thomas Piketty's arguments I think.
Going to have to read that book...
It's one of the "most owned and not read" books out there (with Kindle, they can now track that, which embarrasses most of us ;-)).

It's almost better to seek out presentations made by the writer, and critiques of his work (supportive or refuting). Because the actual book itself is doorstop sized intimidating.

I am rereading histories of the 1920s and 1930s because I think we have moved on a phase - a slightly esoteric economic argument has moved on to a very real one, about real power on the street. It's become about history and the history of politics -- economists are tidied off to their corner. Time froze for a while, but the clock is speeding up again.

I do wish JM Keynes were still around - we need him, and we need him muchly. In fact his biographer, Lord Skidelsky, has written a book "Keynes: the Return of the Master".
Guess i’ll Get it from the library then.

I just read the novel ragtime by e.l. Doctorow. Life in New York in the years leading up to world war 1. Thought provoking.
Keep calm and Boglehead on. KCBO.

columbia
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by columbia » Fri Oct 19, 2018 7:04 pm

Can one participate in an auction of (new) TIPS through Vanguard?

grok87
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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by grok87 » Fri Oct 19, 2018 7:08 pm

columbia wrote:
Fri Oct 19, 2018 7:04 pm
Can one participate in an auction of (new) TIPS through Vanguard?
yes if you have a vanguard brokerage accounts.
Keep calm and Boglehead on. KCBO.

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Re: 30 yr TIPs auction: Oct. 18: 1.2% real yield?

Post by #Cruncher » Fri Oct 19, 2018 10:36 pm

gmaynardkrebs wrote:
Fri Oct 19, 2018 7:38 am
Would using the coupon payments to purchase the same TIPS, effectively "reinvesting" the coupon in the same issuance, be a close substitute for strips?
It depends on the yield to maturity (YTM) at the time coupon payments are reinvested in the TIPS. [1] If the YTM is the same as that of the original purchase, the answer would be "yes". But otherwise the answer would be "no". If the YTM is lower, one would end up with less than the proceeds from a zero-coupon bond having the same YTM; if higher, one would end up with more. (This is shown on rows 9-12 of the table below.)

Continuing with the example from my previous post, if the TIPS had a 0% coupon instead of 1%, the price would have been 69.76% to produce the same 1.235% YTM. As the table below [2] shows, investing $6,976 at the auction and reinvesting the coupons collected over 29 years at 1.235% produces a final value of $10,000 at maturity, just like $6,976 invested in a zero-coupon bond. But if the reinvestment rate were only 0%, the accumulated value would only be $9,574 at maturity.

Code: Select all

Row  Col A                  Col B      Col C
  1  Yield                 1.235%
  2  Term                  29+1/3
  3  Value at maturity     10,000
  4  Coupon                0.000%     1.000%
  5  Price                69.764%    94.247% = -PV(1.235%, 29+1/3, 1%, 1, 0) [3]
  6  Cost                   6,976
  7  Principal              7,402            = 6976 / 94.247%
  8  Reinvest          2048 Value
  9  (1.000%)               9,292 
 10   0.000%                9,574            = 1% * 7402 * (29+1/3) + 7402
 11   1.235%               10,000            = FV(1.235%, 29+1/3, -1% * 7402, 0, 0) + 7402
 12   2.000%               10,317
columbia wrote:
Fri Oct 19, 2018 7:04 pm
Can one participate in an auction of (new) TIPS through Vanguard?
Yes. As shown under "Auction Frequency" on this web page the next 30-year TIPS auction will be in February and it will be "new" and not a reopening auction as was the one yesterday.

  1. For a small size TIPS holding, you'd likely need to accumulate many coupon payments (say in a TIPS fund) to meet the $1,000 minimum most brokers impose to buy individual TIPS.
  2. The table is from a spreadsheet that uses the Excel PV and FV functions.
  3. My calculated price of 94.247% differs from the actual 94.23813 price (see the results PDF file) since I'm using a simpler formula.

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