TIPS yields go positive

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McQ
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TIPS yields go positive

Post by McQ »

... for all maturities twenty years and out, as of Friday's close. First time in awhile; but shorter maturities still show negative real returns.

This development allows an inflation-adjusted bond ladder to be built in arbitrarily large amounts, without the restrictions of I-bonds as to purchase amount, five year holding period, varying rate, etc. But tax treatment is less favorable than I-bonds unless held in a tax-sheltered account.

And as always, no guarantee as to whether these still barely positive real rates might further improve with time or spread to shorter maturities.

PS: German 10-year Bund yields also went positive this week. Something is happening here, Mr. Jones.
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nedsaid
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Re: TIPS yields go positive

Post by nedsaid »

I just looked at the Real Yield Curve at the US Treasury website. As of 2/4/2022, only 30 year TIPS are positive with a real yield of 0.06%. As of 1/3/2022, the 30 year TIPS had a negative real yield of -0.36%. So yes, something is happening. My best guess is that rising nominal rates are causing this, the 30 year U.S. Treasury Bond now has a yield of 2.23% compared to 2.01% on 1/3/2022.
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thenextguy
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Re: TIPS yields go positive

Post by thenextguy »

I read this interesting tweet today: https://twitter.com/julianmi2/status/14 ... 45256?s=21
Robot Monster
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Re: TIPS yields go positive

Post by Robot Monster »

Perfect timing for the 30-year to go positive, as the only once a year, New 30-year TIPS, has its auction this month.

Announcement Date: Thursday, Feb. 10, 2022
Auction Date: Thursday, Feb. 17, 2022

Information from Tipswatch
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Angst
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Re: TIPS yields go positive

Post by Angst »

McQ wrote: Fri Feb 04, 2022 10:18 pm ... for all maturities twenty years and out, as of Friday's close. First time in awhile; but shorter maturities still show negative real returns.

This development allows an inflation-adjusted bond ladder to be built in arbitrarily large amounts, without the restrictions of I-bonds as to purchase amount, five year holding period, varying rate, etc. But tax treatment is less favorable than I-bonds unless held in a tax-sheltered account.
Yes indeed, isn't that nice! It goes all the way back to the Feb 2042 maturity. I've been watching real yields creeping up towards that magical 0% threshold, even though it's probably more of a psychological line in the sand than anything else. Nonetheless, I am pleased:

https://www.wsj.com/market-data/bonds/tips
Unfortunately, this WSJ url will revert to the latest market data, so sometime after midnight tonight, last Friday's numbers should go poof.
McQ wrote: Fri Feb 04, 2022 10:18 pmAnd as always, no guarantee as to whether these still barely positive real rates might further improve with time or spread to shorter maturities.
Yes, but for now, it sure feels like rate increases have some momentum going on... all that inflation talk and Fed guidance and so forth. I'll be watching with thoughts of participating in the Feb 17th, 30-yr auction, we'll see. Last year, I got lucky by waiting a week or two and buying most of my 2051 TIPS in the secondary market, but it was in a nick of time. We all know where real rates stayed most of 2021. I might just take what I can get at this year's auction. I blew it in 2020 with the same strategy - I bought one TIPS at auction as a "placeholder" in my accounts but rates dropped and stayed there before I could make myself act in the secondary market. I Bonds had to end up covering the 2050 rung of my ladder.
:oops:
Last edited by Angst on Sun Feb 06, 2022 2:41 pm, edited 1 time in total.
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drumboy256
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Re: TIPS yields go positive

Post by drumboy256 »

So basically, everyone freaking out that "Bonds aren't working what now?" can go home? Seems kinda sad.... :oops:
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Robot Monster
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Re: TIPS yields go positive

Post by Robot Monster »

For those with subscriptions to the Wall Street Journal, a new article, "Treasury Inflation-Protected Securities: What Investors Should Know About TIPS: Inflation-wary investors are flocking to TIPS rather than to conventional bonds. But they might not understand the drawbacks as well as they should." article link

To be honest, I'm not in love with the article, I have my criticisms. For example:
But Ryan Swift, a bond strategist at BCA Research, says he believes TIPS are overpriced in the near term because the break-even inflation rates priced into TIPS are elevated; he expects break-even rates and TIPS prices to decline as inflation moderates over the remainder of the year.
Personally, I don't buy insurance based on what I think is likely happen, I instead seek to protect myself against an unhappy surprise.

The article also doesn't mention that holding a TIPS fund past average duration can mitigate interest-rate risk; the article only states this can be done by buying TIPS themselves.
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anoop
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Re: TIPS yields go positive

Post by anoop »

Based on the current yields, would the upcoming 10-year TIPS be an OK buy because the rate is no longer negative?
https://www.bloomberg.com/markets/rates ... t-bonds/us
This will be in my Roth so no tax implications.
drk
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Re: TIPS yields go positive

Post by drk »

anoop wrote: Fri May 13, 2022 11:26 am Based on the current yields, would the upcoming 10-year TIPS be an OK buy because the rate is no longer negative?
https://www.bloomberg.com/markets/rates ... t-bonds/us
This will be in my Roth so no tax implications.
FYI: there's an ongoing thread about that 10-year TIPS (viewtopic.php?t=377195).
miket29
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Re: TIPS yields go positive

Post by miket29 »

anoop wrote: Fri May 13, 2022 11:26 am Based on the current yields, would the upcoming 10-year TIPS be an OK buy because the rate is no longer negative?
https://www.bloomberg.com/markets/rates ... t-bonds/us
This will be in my Roth so no tax implications.
TIPS are ok to buy anytime you decide the inflation protection of almost all of your principal is worth the cost if the real interest rate is negative. If you hold cash instead it declines in value at the inflation rate, if you hold bonds they can fall additionally in value if interest rates rise. I bought some TIPS a little while ago and have no regrets.
anoop
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Re: TIPS yields go positive

Post by anoop »

miket29 wrote: Fri May 13, 2022 12:09 pm
anoop wrote: Fri May 13, 2022 11:26 am Based on the current yields, would the upcoming 10-year TIPS be an OK buy because the rate is no longer negative?
https://www.bloomberg.com/markets/rates ... t-bonds/us
This will be in my Roth so no tax implications.
TIPS are ok to buy anytime you decide the inflation protection of almost all of your principal is worth the cost if the real interest rate is negative. If you hold cash instead it declines in value at the inflation rate, if you hold bonds they can fall additionally in value if interest rates rise. I bought some TIPS a little while ago and have no regrets.
I wouldn’t be comfortable buying when the TIPS yield is negative like it was a few months ago.
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