TIPS go Crazy!

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grayfox
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TIPS go Crazy!

Post by grayfox » Tue Mar 17, 2020 6:11 pm

We have been so busy watching the stock market go up and down like a yo-yo that we missed the crazy action in TIPS market. Here are Treasury Real Yields so far in March 2020.

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Daily Treasury Real Yield Curve Rates					
DATE		5 YR	7 YR	10 YR	20 YR	30 YR
03/02/20	-0.44	-0.39	-0.31	-0.02	0.26
03/03/20	-0.57	-0.52	-0.43	-0.17	0.05
03/04/20	-0.59	-0.54	-0.44	-0.18	0.04
03/05/20	-0.61	-0.58	-0.48	-0.24	-0.01
03/06/20	-0.56	-0.57	-0.57	-0.48	-0.22
03/09/20	-0.32	-0.39	-0.45	-0.42	-0.2
03/10/20	-0.14	-0.23	-0.24	-0.08	0.06
03/11/20	-0.03	-0.13	-0.14	0	0.13
03/12/20	0.03	-0.04	-0.04	0.14	0.3
03/13/20	0.17	0.07	0.04	0.22	0.39
03/16/20	0.19	0.04	0	0.17	0.31
03/17/20	0.5	0.41	0.39	0.54	0.67
TIPS had negative real YTM across the board on March 9. Now they have some serious positive YTM. The W$J TIPS prices must have have come down a lot.

Now here are Nominal Treasury Yields

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Daily Treasury Yield Curve Rates
Date		1 Mo	2 Mo	3 Mo	6 Mo	1 Yr	2 Yr	3 Yr	5 Yr	7 Yr	10 Yr	20 Yr	30 Yr
03/02/20	1.41	1.27	1.13	0.95	0.89	0.84	0.85	0.88	1.01	1.1	1.46	1.66
03/03/20	1.11	1.05	0.95	0.83	0.73	0.71	0.72	0.77	0.91	1.02	1.44	1.64
03/04/20	1	0.87	0.72	0.68	0.59	0.67	0.68	0.75	0.9	1.02	1.45	1.67
03/05/20	0.92	0.83	0.62	0.53	0.48	0.59	0.61	0.67	0.81	0.92	1.34	1.56
03/06/20	0.79	0.64	0.45	0.41	0.39	0.49	0.53	0.58	0.69	0.74	1.09	1.25
03/09/20	0.57	0.52	0.33	0.27	0.31	0.38	0.4	0.46	0.56	0.54	0.87	0.99
03/10/20	0.57	0.55	0.44	0.43	0.43	0.5	0.58	0.63	0.73	0.76	1.16	1.28
03/11/20	0.42	0.42	0.42	0.4	0.4	0.5	0.58	0.66	0.78	0.82	1.13	1.3
03/12/20	0.41	0.33	0.33	0.37	0.39	0.5	0.58	0.66	0.82	0.88	1.27	1.49
03/13/20	0.33	0.3	0.28	0.38	0.38	0.49	0.58	0.7	0.89	0.94	1.31	1.56
03/16/20	0.25	0.25	0.24	0.29	0.29	0.36	0.43	0.49	0.67	0.73	1.1	1.34
03/17/20	0.12	0.18	0.19	0.24	0.3	0.47	0.54	0.66	0.91	1.02	1.45	1.63
Nominal Treasuries (10-, 20-, 30-Year) have not changed much since the beginning of March. And if I subtract one from the other

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Breakeven Inflation Rate				
5 YR	7 YR	10 YR	20 YR	30 YR
1.32	1.40	1.41	1.48	1.40
1.34	1.43	1.45	1.61	1.59
1.34	1.44	1.46	1.63	1.63
1.28	1.39	1.40	1.58	1.57
1.14	1.26	1.31	1.57	1.47
0.78	0.95	0.99	1.29	1.19
0.77	0.96	1.00	1.24	1.22
0.69	0.91	0.96	1.13	1.17
0.63	0.86	0.92	1.13	1.19
0.53	0.82	0.90	1.09	1.17
0.30	0.63	0.73	0.93	1.03
0.16	0.50	0.63	0.91	0.96
It looks like the Treasury market is expecting low inflation.

:?: Is it time to buy TIPS?
Last edited by grayfox on Tue Mar 17, 2020 6:14 pm, edited 1 time in total.
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willthrill81
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Re: TIPS go Crazy!

Post by willthrill81 » Tue Mar 17, 2020 6:14 pm

Didn't you just sell all your TIPS?

I wonder if TIPS' liquidity premium has gone up rather than the market's expectations of inflation having gone down.
Last edited by willthrill81 on Tue Mar 17, 2020 6:16 pm, edited 2 times in total.
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Re: TIPS go Crazy!

Post by grayfox » Tue Mar 17, 2020 6:15 pm

Yes, I sold TIPS just a few weeks ago when the yield was negative and the price premium. Now the price has come down to discount and the yields are healthy positive.

I don't know what this all means or what is going on. Like why did LT Treasuries yield go down, but then come back up again?

It is chaos everywhere!
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gmaynardkrebs
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Re: TIPS go Crazy!

Post by gmaynardkrebs » Tue Mar 17, 2020 6:55 pm

Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.

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Re: TIPS go Crazy!

Post by willthrill81 » Tue Mar 17, 2020 6:57 pm

gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
It almost seems like a no-brainer.
“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: TIPS go Crazy!

Post by Call_Me_Op » Tue Mar 17, 2020 7:01 pm

Look at real yields back in 2008. They went through the roof. This was related to a liquidity issue. I picked-up a bunch of 10 year TIPS yielding almost 4% real back then.
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SimpleGift
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Re: TIPS go Crazy!

Post by SimpleGift » Tue Mar 17, 2020 7:18 pm

Related Forum thread (with charts):

TIPS Yield Curve & Changing Inflation Expectations

JohnDoh
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Re: TIPS go Crazy!

Post by JohnDoh » Tue Mar 17, 2020 7:33 pm

This TIPSWatch article from 12 March 2020 may be of interest:

Amid Bond Rally, The TIP ETF Got Crushed. Why?

In the comments, the author updated the article today (17 March 2020):
UPDATE, Tuesday evening: Big move today in Treasury yields, with the 10-year nominal yield rising to about 1.09% and the 10-year TIPS real yield rising to 0.39%. Despite the increases, the inflation breakeven rate stayed very low, at 0.70%. The TIP ETF plummeted 2.8% to a price of $110.16. Pretty incredible.
I'm looking at:
VTIP (Vanguard ST TIPS)
TIP (iShares IT TIPS)
LTPZ (Pimco LT TIPS)

Thoughts?

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Re: TIPS go Crazy!

Post by JohnDoh » Tue Mar 17, 2020 7:36 pm

Also this TIPS Watch article of 16 March 2020:

This Week's 10-Year TIPS Reopening Looks... Who Knows?

with the same 17 March 2020 update in the comments.

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Re: TIPS go Crazy!

Post by long_gamma » Tue Mar 17, 2020 7:37 pm

10 year breakevens are highly correlated to front month crude. Today crude went down almost 7%, taking down the breakeven
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Re: TIPS go Crazy!

Post by grayfox » Wed Mar 18, 2020 7:38 am

Which TIPS are good buys right now?

:idea: One idea I heard about is to buy TIPS with low index ratio, close to 1.000, so that if there is deflation you don't lose anything. How does that work exactly?

I think the WSJ is calling the index ratio " ACCRUED PRINCIPAL".

WSJ TIPS page dated Tuesday March 17 shows these with index ratio close to 1.000.

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MATURITY	COUPON	BID	ASKED	CHG	YIELD*	ACCRUED PRINCIPAL
2030 Jan 15	0.125	97.29	98.00	-112	0.332	1000
2050 Feb 15	0.250	91.08	91.13	-252	0.562	1001
Wednesday 20200318 8:38am EDT Vanguard bond trading shows

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MATURITY	COUPON	BID	ASKED	YTM-BID	YTM-ASK
02/15/2050	0.250	83.321	89.109	0.886	0.651
I believe this 30-year TIPS was issued on Feb 28, 2020 at a price of 99.642269 for a interest rate of 0.261%
Right now, you can get it for 89.109 and 0.651% real YTM. On sale $10 off.

Very wide bid-ask spread on Vanguard.
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Re: TIPS go Crazy!

Post by JohnDoh » Wed Mar 18, 2020 7:59 am

If I'm reading the WSJ table correctly, isn't the best the:

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Maturity	Coupon	Bid	Asked	Chg	Yield*	Accrued principal
2042 Feb 15	0.750	99.26	99.31	-204	0.752	1139
It has the highest yield and also price below 100. :?:

EDIT: CUSIP 912810QV3
Last edited by JohnDoh on Wed Mar 18, 2020 8:03 am, edited 1 time in total.

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Re: TIPS go Crazy!

Post by JohnDoh » Wed Mar 18, 2020 8:02 am

Also LTPZ (PIMCO 15 PLUS YEAR US TIPS INDEX ETF) is trading at 2.9% discount so you'd get that on top.

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gmaynardkrebs
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Re: TIPS go Crazy!

Post by gmaynardkrebs » Wed Mar 18, 2020 8:16 am

Reminder: Hold TIPS in 401k or IRA if at all possible.
There's a 5-year auction in about a month. I've decided to wait for that.
Note: LTPZ has a .2 cost -- not awful, but higher than the regular TIP etf or VAIPX.

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Re: TIPS go Crazy!

Post by halfnine » Wed Mar 18, 2020 8:32 am

So the question then is...at what target yields is anyone here going to shift some of their fixed allocation toward TIPS?

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Re: TIPS go Crazy!

Post by gmaynardkrebs » Wed Mar 18, 2020 8:48 am

halfnine wrote:
Wed Mar 18, 2020 8:32 am
So the question then is...at what target yields is anyone here going to shift some of their fixed allocation toward TIPS?
Starting at 1% real yield. I doubt we will get there. However, if the fates allow 2%, I will go all-in.
Note: At least on Vanguard, the spreads on TIPS are ridiculous now now on online orders. Perhaps it is better by phone. Not sure how spreads are on Fidelity, as I don't have an account there.

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Re: TIPS go Crazy!

Post by FIREchief » Wed Mar 18, 2020 2:05 pm

halfnine wrote:
Wed Mar 18, 2020 8:32 am
So the question then is...at what target yields is anyone here going to shift some of their fixed allocation toward TIPS?
My fixed allocation (LMP) is already 100% TIPS. I'm hoping these rates stick for a couple more months while I complete the final 6% of my 10 year TIPS ladder. 8-)
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: TIPS go Crazy!

Post by Jebediah » Wed Mar 18, 2020 2:10 pm

What are thoughts on buying a TIPS fund? Do the fund managers have latitude to navigate the spreads optimally or are they forced to make bad trades? Which is the better intermediate/all market choice: an ETF (iShares TIP) or a mutual fund (VIPSX) ?

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Re: TIPS go Crazy!

Post by halfnine » Wed Mar 18, 2020 3:39 pm

FIREchief wrote:
Wed Mar 18, 2020 2:05 pm
halfnine wrote:
Wed Mar 18, 2020 8:32 am
So the question then is...at what target yields is anyone here going to shift some of their fixed allocation toward TIPS?
My fixed allocation (LMP) is already 100% TIPS. I'm hoping these rates stick for a couple more months while I complete the final 6% of my 10 year TIPS ladder. 8-)
TIPS are getting to the point where they are back on my radar for the USA portion of my fixed income. It's been a long time. I am going to have to go back and see where my inflection point is and where and how I'd purchase them.

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Re: TIPS go Crazy!

Post by FIREchief » Wed Mar 18, 2020 5:23 pm

Jebediah wrote:
Wed Mar 18, 2020 2:10 pm
What are thoughts on buying a TIPS fund? Do the fund managers have latitude to navigate the spreads optimally or are they forced to make bad trades? Which is the better intermediate/all market choice: an ETF (iShares TIP) or a mutual fund (VIPSX) ?
I find owning individual TIPS to be a much better approach (for me). I don't pay any expenses and I can structure the portfolio to fit my needs. Currently I'm using a ten year rolling ladder with additional issues maturing in the years approaching SS filing at age 70. This creates an LMP/RP portfolio with a rising equity glidepath.
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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grayfox
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Re: TIPS go Crazy!

Post by grayfox » Thu Mar 19, 2020 6:49 am

Sic transit gloria mundi. [STGM]

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Re: TIPS go Crazy!

Post by tvubpwcisla » Thu Mar 19, 2020 6:51 am

TIPS are a good thing to have in portfolio regardless of market conditions. A nice way to diversify a slice of your pie. For me, I would allocate a small portion of my portfolio to TIPS (no more than 10%).
Stay invested my friends.

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Re: TIPS go Crazy!

Post by jeffyscott » Thu Mar 19, 2020 7:25 am

Jebediah wrote:
Wed Mar 18, 2020 2:10 pm
What are thoughts on buying a TIPS fund? Do the fund managers have latitude to navigate the spreads optimally or are they forced to make bad trades? Which is the better intermediate/all market choice: an ETF (iShares TIP) or a mutual fund (VIPSX) ?
VIPSX (actually VAIPX) is a managed fund, but it doesn't seem to vary much from the index funds. There are actual TIPS index mutual funds available from Fidelity and Schwab with slightly lower ERs than VAIPX.

I don't use ETFs for anything at all, myself. TIP has a higher ER than the Vanguard fund or the two index funds that I mentioned, so there certainly seems to be no reason to buy that instead of the mutual funds, unless you intend to day trade it or something.
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Re: TIPS go Crazy!

Post by Chip » Thu Mar 19, 2020 8:05 am

grayfox wrote:
Thu Mar 19, 2020 6:49 am
Treasury Auction Tomorrow Morning: 3/19/20 of 1/15/2030 0.125% TIPS
Thanks for the heads up; my order is in. I passed on the January auction due to yields. Still not happy with them, but they're definitely better now.

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Re: TIPS go Crazy!

Post by jeffyscott » Thu Mar 19, 2020 9:40 am

grayfox wrote:
Thu Mar 19, 2020 6:49 am
Treasury Auction Tomorrow Morning: 3/19/20[/url] of 1/15/2030 0.125% TIPS
When you buy at auction, when do you actually own it and start earning the yield today or on the issuance date? The auction is today but the issue date is 03/31/2020. I'm not going for this one, but might do the 5 year next month.
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Re: TIPS go Crazy!

Post by watchnerd » Thu Mar 19, 2020 9:46 am

jeffyscott wrote:
Thu Mar 19, 2020 9:40 am

When you buy at auction, when do you actually own it and start earning the yield today or on the issuance date? The auction is today but the issue date is 03/31/2020. I'm not going for this one, but might do the 5 year next month.
I only do short TIPS, do I'll be going for the 5 next month, as well.
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Re: TIPS go Crazy!

Post by rustymutt » Thu Mar 19, 2020 9:51 am

Just my observation, appears the sky is falling everywhere, on every one. No place to hide, other than cash for the moment.
To much nervousness of markets world wide. Deflation makes me nervous.

:moneybag
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Re: TIPS go Crazy!

Post by jeffyscott » Thu Mar 19, 2020 10:02 am

watchnerd wrote:
Thu Mar 19, 2020 9:46 am
jeffyscott wrote:
Thu Mar 19, 2020 9:40 am

When you buy at auction, when do you actually own it and start earning the yield today or on the issuance date? The auction is today but the issue date is 03/31/2020. I'm not going for this one, but might do the 5 year next month.
I only do short TIPS, do I'll be going for the 5 next month, as well.
I have only bought short secondary ones in the past (1-3 years) and some are maturing on 4/15. I have also bought TIPS funds, full TIPS market index funds and the Vg short TIPS fund (VTAPX). This would be the first time buying at auction, if I do so.
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Re: TIPS go Crazy!

Post by happymob » Thu Mar 19, 2020 11:46 am

Secondary market liquidity seems terrible right now. There are no bids on a 22-year TIP I own according to Fidelity (at least in the quantity I have). Maybe being so close to the auction is affecting liquidity of existing TIPS. Or maybe we're back to TIPS are simply a loss less liquid than nominal treasuries in a crisis. I'll check back next week.

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Re: TIPS go Crazy!

Post by Dottie57 » Thu Mar 19, 2020 11:50 am

gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?

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Re: TIPS go Crazy!

Post by willthrill81 » Thu Mar 19, 2020 11:52 am

Dottie57 wrote:
Thu Mar 19, 2020 11:50 am
gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?
Could it be that people are selling bonds in order to buy stocks en masse?
“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: TIPS go Crazy!

Post by gmaynardkrebs » Thu Mar 19, 2020 11:57 am

willthrill81 wrote:
Thu Mar 19, 2020 11:52 am
Dottie57 wrote:
Thu Mar 19, 2020 11:50 am
gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?
Could it be that people are selling bonds in order to buy stocks en masse?
I have heard of two major theories: hedge fund unwinding strategies; foreign owners of tips and other treasuries desperately raising cash.

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Re: TIPS go Crazy!

Post by Dottie57 » Thu Mar 19, 2020 11:59 am

willthrill81 wrote:
Thu Mar 19, 2020 11:52 am
Dottie57 wrote:
Thu Mar 19, 2020 11:50 am
gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?
Could it be that people are selling bonds in order to buy stocks en masse?
My two thoughts were your suggestion or might it be the Treasury? Can you also explain why TIPS are illiquid but it doesn’t seem like other treasuries are not?

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Re: TIPS go Crazy!

Post by willthrill81 » Thu Mar 19, 2020 12:01 pm

Dottie57 wrote:
Thu Mar 19, 2020 11:59 am
willthrill81 wrote:
Thu Mar 19, 2020 11:52 am
Dottie57 wrote:
Thu Mar 19, 2020 11:50 am
gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?
Could it be that people are selling bonds in order to buy stocks en masse?
My two thoughts were your suggestion or might it be the Treasury? Can you also explain why TIPS are illiquid but it doesn’t seem like other treasuries are not?
TMK, Treasuries did have some liquidity problems last week or so, which is why the Fed immediately jumped in to start buying them and restore liquidity.
“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: TIPS go Crazy!

Post by jeffyscott » Thu Mar 19, 2020 12:02 pm

I think people are selling everything to "buy" cash. Relative who works for a credit union told me their cash machines were running out of money because of people emptying their accounts.

There is a lot of hoarding going on: cash, TP, food, hand sanitizer, etc. And even stealing masks, etc. from hospitals has been reported.
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Re: TIPS go Crazy!

Post by jeffyscott » Thu Mar 19, 2020 12:08 pm

willthrill81 wrote:
Thu Mar 19, 2020 12:01 pm
Dottie57 wrote:
Thu Mar 19, 2020 11:59 am
willthrill81 wrote:
Thu Mar 19, 2020 11:52 am
Dottie57 wrote:
Thu Mar 19, 2020 11:50 am
gmaynardkrebs wrote:
Tue Mar 17, 2020 6:55 pm
Real yields have gone up (which makes no sense given that the Fed is trying extremely hard to keep real rates down), so I have to suspect a serious amount of dumping into an liquid market. The Fed will get what it wants, so my guess is that throwing some money into TIPS right now will reap a nice capital gain in fairly short order.
I really don’t understand who might be dumping bonds? Why is this market for TIPS illiquid?
Could it be that people are selling bonds in order to buy stocks en masse?
My two thoughts were your suggestion or might it be the Treasury? Can you also explain why TIPS are illiquid but it doesn’t seem like other treasuries are not?
TMK, Treasuries did have some liquidity problems last week or so, which is why the Fed immediately jumped in to start buying them and restore liquidity.
Related to that, yield on 10 year went from 0.54% to 1.18% from 3/9-3/18.
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BlueEars
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Re: TIPS go Crazy!

Post by BlueEars » Thu Mar 19, 2020 12:21 pm

I was in TIPS in 2008 when the iliquidity issues emerged. I never saw a really good explanation which would include the investors (institutions?) that were needing liquidity. There were threads on this back then. Swedroe had been in the TIPS discussions but he didn't anticipate those liquidity issues. Here is what happened to the 5 year TIPS then:


Image

The 5 year is currently at 0.63%. I had bought some at 1% in late 2018. Anything I buy I hold to maturity.
I'm now interested but will hold off until we get to more interesting levels.

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Re: TIPS go Crazy!

Post by Chip » Thu Mar 19, 2020 12:43 pm

The 10 year re-opening auction today came in at a real yield of .68%.

https://www.treasurydirect.gov/instit/a ... 0319_4.pdf

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Re: TIPS go Crazy!

Post by gmaynardkrebs » Thu Mar 19, 2020 12:52 pm

Chip wrote:
Thu Mar 19, 2020 12:43 pm
The 10 year re-opening auction today came in at a real yield of .68%.

https://www.treasurydirect.gov/instit/a ... 0319_4.pdf
I am waiting for the five-year auction scheduled for mid April. The deflation put at par is more significant on short maturities.

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Re: TIPS go Crazy!

Post by JohnDoh » Thu Mar 19, 2020 12:54 pm

Chip wrote:
Thu Mar 19, 2020 12:43 pm
The 10 year re-opening auction today came in at a real yield of .68%.

https://www.treasurydirect.gov/instit/a ... 0319_4.pdf
Any educated guesses what this will mean for I Bonds in May or beyond? The current fixed rate is 0.2% and I believe had been expected to drop to 0.0% before the current excitement?

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Re: TIPS go Crazy!

Post by grayfox » Thu Mar 19, 2020 4:02 pm

jeffyscott wrote:
Thu Mar 19, 2020 9:40 am
grayfox wrote:
Thu Mar 19, 2020 6:49 am
Treasury Auction Tomorrow Morning: 3/19/20[/url] of 1/15/2030 0.125% TIPS
When you buy at auction, when do you actually own it and start earning the yield today or on the issuance date? The auction is today but the issue date is 03/31/2020. I'm not going for this one, but might do the 5 year next month.
3/31/2020 is the settlement date. As far as I can tell, you own it as soon as the auction is over. E.g. you have to pay the accrued interest, so it's already earning interest.

Name: U S TREASURY NOTE INFLATION INDEX NOTE .125% 01/15/30 01/15/20
CUSIP number: 912828Z37
Executed price: $94.7513
Principle Amount: xxx.xx
Accrued Interest: whatever the interest is so far
Net Amount: Principle Amount + Accrued interest
Eecution date: 03/19/2020 04:12:06 p.m., ET
Settlement date: 03/31/2020


The coupon 1/8 % is so small, that it is almost like a zero-coupon bond, i.e. I paid 94.7513 and it will pay 100.00 on 1/15/2030.
The real YTM is 0.680% which is not bad considering that a week ago the real YTM on 10-year was negative, -0.57 on 3/6/2020.
Last edited by grayfox on Thu Mar 19, 2020 4:51 pm, edited 2 times in total.
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Re: TIPS go Crazy!

Post by BlueEars » Thu Mar 19, 2020 4:09 pm

Are TIPS rates rising because of potential deflation down the road?

If I understand TIPS inflation factor correctly, deflation can eat away at the inflation factor. You are guaranteed to get your principle back which I think corresponds to an inflation factor driven below 1.0. Now if the inflation factor rises above 1.0 then you will still suffer some loss of returns during the deflationary months. Does this sound right?

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Re: TIPS go Crazy!

Post by gmaynardkrebs » Thu Mar 19, 2020 4:27 pm

BlueEars wrote:
Thu Mar 19, 2020 4:09 pm
Are TIPS rates rising because of potential deflation down the road?

If I understand TIPS inflation factor correctly, deflation can eat away at the inflation factor. You are guaranteed to get your principle back which I think corresponds to an inflation factor driven below 1.0. Now if the inflation factor rises above 1.0 then you will still suffer some loss of returns during the deflationary months. Does this sound right?
More likley flight to cash by hedge funds.

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Re: TIPS go Crazy!

Post by BlueEars » Thu Mar 19, 2020 4:31 pm

gmaynardkrebs wrote:
Thu Mar 19, 2020 4:27 pm
BlueEars wrote:
Thu Mar 19, 2020 4:09 pm
Are TIPS rates rising because of potential deflation down the road?

If I understand TIPS inflation factor correctly, deflation can eat away at the inflation factor. You are guaranteed to get your principle back which I think corresponds to an inflation factor driven below 1.0. Now if the inflation factor rises above 1.0 then you will still suffer some loss of returns during the deflationary months. Does this sound right?
More likley flight to cash by hedge funds.
Yes, possibly both are factors. But am I right about the inflation factor treatment in deflation? If so then I think this is pretty significant for investors here regardless of what drove up the real yields.

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Re: TIPS go Crazy!

Post by gmaynardkrebs » Thu Mar 19, 2020 4:44 pm

BlueEars wrote:
Thu Mar 19, 2020 4:31 pm
gmaynardkrebs wrote:
Thu Mar 19, 2020 4:27 pm
BlueEars wrote:
Thu Mar 19, 2020 4:09 pm
Are TIPS rates rising because of potential deflation down the road?

If I understand TIPS inflation factor correctly, deflation can eat away at the inflation factor. You are guaranteed to get your principle back which I think corresponds to an inflation factor driven below 1.0. Now if the inflation factor rises above 1.0 then you will still suffer some loss of returns during the deflationary months. Does this sound right?
More likley flight to cash by hedge funds.
Yes, possibly both are factors. But am I right about the inflation factor treatment in deflation? If so then I think this is pretty significant for investors here regardless of what drove up the real yields.
You are correct that if you buy an older bond with an inflation factor your "put" is only protected to 1.0. Note also: even with a new bond at 1.0, if there's deflation, your coupons will be on the <1.0 amount, even though you will redeem at no less than par. I doubt this a major the cause of the recent upset, but it could be a bit more of a factor on <5 year TIPS.

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Re: TIPS go Crazy!

Post by halfnine » Thu Mar 19, 2020 4:51 pm

happymob wrote:
Thu Mar 19, 2020 11:46 am
Secondary market liquidity seems terrible right now. There are no bids on a 22-year TIP I own according to Fidelity (at least in the quantity I have). Maybe being so close to the auction is affecting liquidity of existing TIPS. Or maybe we're back to TIPS are simply a loss less liquid than nominal treasuries in a crisis. I'll check back next week.
I had the same trouble yesterday with a nominal treasury that had 2 months remaining until maturity. Strange times.

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Re: TIPS go Crazy!

Post by grayfox » Fri Mar 20, 2020 7:23 am

I think we lucked out getting the 2030 TIPS at 94.75 (ytm 0.68%). :sharebeer
Just two months ago, at the original issuance of the same bond, the auction came in at something like 100.86 (ytm 0.036%). See New 10-Year TIPS Gets Real Yield Of 0.036%, Lowest Since 2013

Look what it's trading for now on the secondary market.

Code: Select all

Date     Time   MATURITY        COUPON  BID     ASKED   YTM-BID YTM-ASK
20200320 08:19  01/15/2030      0.125   91.578  98.429  1.030   0.287
The bond traders will sell it to you for 98.43, but only buy it for 91.58. The spread is ridiculous.
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Re: TIPS go Crazy!

Post by Chip » Fri Mar 20, 2020 1:50 pm

I don't see spreads quite that wide right now on Fidelity, though they aren't currently showing a bid online for the 1/30 issue. Something close that does have a bid/ask at Fido is the 1/29 .875% at 102.851/104.226.

That's still about a 1.3% spread, which is huge compared to prior years. I remember spreads on 20 year TIPS of about half that in 9/08, and around .1% before the GFC on 10 year TIPS.

Crazy times. Glad we were able to buy at auction.

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Re: TIPS go Crazy!

Post by FIREchief » Fri Mar 20, 2020 1:55 pm

Yep, the secondary market isn't very attractive for the Jan 2030 ten year right now. I'll be saving my pennies for the May reopening.
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Re: TIPS go Crazy!

Post by watchnerd » Fri Mar 20, 2020 2:12 pm

What's the collective wisdom on buying a 5 year at 0.511 (Vanguard bond desk) on the secondary market now vs waiting for the 5 year auction on 4/16/20?
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