TIPs: The final year in the life of a 5 year TIP
TIPs: The final year in the life of a 5 year TIP
I own a TIPs bond that will mature 1 year from today- i.e. 4/15/2023. In this thread i plan to track what happens over the next year.
Here is my motivation- i.e. actionability:
I've always been curious about what happens to TIPs during their last year of life.My understanding is that the real yields become very erratic during the last year of life since the CPI they adjust off of is not seasonally adjusted. Perhaps for this reason the PIMCO short term tips excludes them STPZ
https://www.pimco.com/en-us/investments ... aded-fund/
as does the schwab etf SCHP fund which tracks this index
https://data.bloomberglp.com/profession ... ries-L.pdf
as does the regular vanguard fund VIPSX (or at least the index it is benchmarked against)
whereas the Vanguard fund VTAPX and the Ishares fund STIP include them. So are they are worthwhile investment or not? Should i be selling like VIPSX and SCHP are? or holding like VTAPX and STIP do?
Here is the data as of yesterday 4/14/2022:
Coupon: 0.625%
Price: 103.829
Real yield to maturity: -3.26%
Spread to treasuries = -5.05% (i.e. breakeven inflation is 5.05%)
reference nominal treasury =coupon 0.25% due 4/15/2023- (this must have been auctioned on 4/15/2021)
reference treasury yield 1.79% (=-3.26% - -5.05%) (note 1 year tbill is at 1.70%)
index factor 1.13773
Price including index factor: 118.265895
I think that's it. Will try to update at least weekly.
cheers,
grok
Here is my motivation- i.e. actionability:
I've always been curious about what happens to TIPs during their last year of life.My understanding is that the real yields become very erratic during the last year of life since the CPI they adjust off of is not seasonally adjusted. Perhaps for this reason the PIMCO short term tips excludes them STPZ
https://www.pimco.com/en-us/investments ... aded-fund/
as does the schwab etf SCHP fund which tracks this index
https://data.bloomberglp.com/profession ... ries-L.pdf
as does the regular vanguard fund VIPSX (or at least the index it is benchmarked against)
whereas the Vanguard fund VTAPX and the Ishares fund STIP include them. So are they are worthwhile investment or not? Should i be selling like VIPSX and SCHP are? or holding like VTAPX and STIP do?
Here is the data as of yesterday 4/14/2022:
Coupon: 0.625%
Price: 103.829
Real yield to maturity: -3.26%
Spread to treasuries = -5.05% (i.e. breakeven inflation is 5.05%)
reference nominal treasury =coupon 0.25% due 4/15/2023- (this must have been auctioned on 4/15/2021)
reference treasury yield 1.79% (=-3.26% - -5.05%) (note 1 year tbill is at 1.70%)
index factor 1.13773
Price including index factor: 118.265895
I think that's it. Will try to update at least weekly.
cheers,
grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
Thanks; I have a big slug of Jan 2025s that I bought in the fall of 2008 that will be going through the same process. 2.375% coupon.
When you discover that you are riding a dead horse, the best strategy is to dismount.
Re: TIPs: The final year in the life of a 5 year TIP
Not really. The market knows how TIPS are indexed and takes the use of non-seasonally adjusted CPI into account. (See TIPS yield curve and seasonal adjustment update by Kevin M.) I believe the main reason for the erratic movement of yields for near-to-maturity TIPS is simply the mathematics of yield calculation. For example, here is the effect on yields of a change in price from 100 to 99.5 for bonds maturing in three months, one year, and five years (calculated with the Excel RATE function):
Code: Select all
Row Col A Col B Col C Col D Formula in col B copied to col D
27 Coupon 1.00%
28 Old Price 100.00
29 New Price 99.50
30 Years to maturity 0.25 1.00 5.00
31 Old yield 1.00% 1.00% 1.00% =RATE(B$30,100*$B$27,-$B28,100,0)
32 New Yield 3.04% 1.51% 1.10% =RATE(B$30,100*$B$27,-$B29,100,0)
33 Difference 2.04% 0.51% 0.10% =B32-B31
I see no reason not to hold TIPS until final maturity. During their last year they can have a distorting effect on the average yields of funds that include them. But this a reporting problem, not an investing problem. (For example, see footnote 2 at the bottom of my latest update of the "Consistent Yield & Duration to Help Choose TIPS Fund" thread.)
I get a slightly higher yield of -3.145% calculated both with the YIELD and XIRR Excel functions (in cells B6 and B19 below). Also the correct adjusted price is 118.129 (103.829 X 1.13773), not 118.266. And if measuring from 6/1/2022 (the date of the last known Reference CPI used to index TIPS) instead of from the 4/18/2022 settlement date, I back into a breakeven inflation rate of 3.73% rather than 5.05%.grok87, in same post, wrote:Here is the data as of yesterday 4/14/2022:
Coupon: 0.625%
Price: 103.829
Real yield to maturity: -3.26% <===
Spread to treasuries = -5.05% (i.e. breakeven inflation is 5.05%) <===
reference nominal treasury =coupon 0.25% due 4/15/2023- (this must have been auctioned on 4/15/2021)
reference treasury yield 1.79% (=-3.26% - -5.05%) (note 1 year tbill is at 1.70%)
index factor 1.13773
Price including index factor: 118.265895 <===
Here is a table similar to one I prepared in this post of Kevin M's thread, Bought 2y Treasury and 2y TIPS:
Code: Select all
Row Col A Col B Col C Col D Formulas in column B
1 Settlement 4/18/2022
2 Maturity 4/15/2023
3 Coupon 0.625%
4 Face value 10,000
5 Price 103.829
6 Yield -3.145% =YIELD(B1,B2,B3,B5,100,2,1)
7 Days to settle 3 =COUPDAYBS(B1,B2,2,1)
8 Days in period 183 =COUPDAYS(B1,B2,2,1)
9 Accrued interest 0.51 =B4*(B3/2)*(B7/B8)
10 Last date Ref CPI 6/1/2022
11 Last index ratio 1.15746
12 Annual inflation 3.730% <===
Code: Select all
13 Real Index Nominal
14 Cash Flow Ratios Cash Flow
--------- ------- ---------
15 4/18/2022 (10,383.41) 1.13773 (11,813.52) =-B4*(B5/100)-B9
16 10/15/2022 31.25 1.17336 36.67 =B$4*(B$3/2)+IF($A16=B$2,B$4,0)
17 4/15/2023 10,031.25 1.19498 11,987.19 v v v
18 Profit/(Loss) (320.91) 210.34 =SUM(B15:B17)
19 XIRR -3.145% +1.790% =2*((1+XIRR(B15:B17,$A15:$A17))^0.5-1)
- Column B is the TIPS denominated in constant (i.e., 4/15/2018) dollars.
- Column C contains actual and estimated index ratios for the TIPS. April 18 and June 1 are from this web page. Ones for 10/15/2022 and 4/15/2023 are calculated based on the assumed subsequent inflation in cell C12. E.g.,
1.17336 = 1.15746 * 1.0373 ^ ((DATE(2022, 10, 15) - DATE(2022, 6, 1)) / 365) - Column D is the TIPS constant dollar amounts multiplied by the index ratios to produce the assumed nominal cash flows.
- Row 19 shows the returns based on the cash flows in rows 15 through 17. The 3.73% assumed inflation in cell C12 was arrived at by trial and error to make the 1.79% nominal TIPS return equal the 1.79% yield of the nominal Treasury maturing on the same date.
- Table uses the Excel YIELD, COUPDAYBS, COUPDAYS, and XIRR Excel functions.
Re: TIPs: The final year in the life of a 5 year TIP
THanks #Cruncher. the 3.73% figure makes me feel better about holding to maturity.#Cruncher wrote: ↑Fri Apr 15, 2022 4:20 pmI get a slightly higher yield of -3.145% calculated both with the YIELD and XIRR Excel functions (in cells B6 and B19 below). Also the correct adjusted price is 118.129 (103.829 X 1.13773), not 118.266. And if measuring from 6/1/2022 (the date of the last known Reference CPI used to index TIPS) instead of from the 4/18/2022 settlement date, I back into a breakeven inflation rate of 3.73% rather than 5.05%.grok87, in same post, wrote:Here is the data as of yesterday 4/14/2022:
Coupon: 0.625%
Price: 103.829
Real yield to maturity: -3.26% <===
Spread to treasuries = -5.05% (i.e. breakeven inflation is 5.05%) <===
reference nominal treasury =coupon 0.25% due 4/15/2023- (this must have been auctioned on 4/15/2021)
reference treasury yield 1.79% (=-3.26% - -5.05%) (note 1 year tbill is at 1.70%)
index factor 1.13773
Price including index factor: 118.265895 <===
cheers,
grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
here's the update. not much has happened despite the selloff in the bond market
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
RIP Mr. Bogle.
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Re: TIPs: The final year in the life of a 5 year TIP
Thanks for doing this.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
Re: TIPs: The final year in the life of a 5 year TIP
update for May 5th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
so far very uneventful. Price is moving to 100 where it will end up at maturity. Real yield is increasing and at maturity would be the 0.625% coupon i guess. Spread to treasuries, breakeven, is dropping which is interesting, not sure what to make of that...
cheers,
grok
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
so far very uneventful. Price is moving to 100 where it will end up at maturity. Real yield is increasing and at maturity would be the 0.625% coupon i guess. Spread to treasuries, breakeven, is dropping which is interesting, not sure what to make of that...
cheers,
grok
RIP Mr. Bogle.
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Re: TIPs: The final year in the life of a 5 year TIP
I have an mba and think I am educated on how bonds and financial markets work. TIPs just seem like “magic and mirrors”. Can someone explain this in a basic and simple manner?
- gmaynardkrebs
- Posts: 2319
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Re: TIPs: The final year in the life of a 5 year TIP
https://www.bogleheads.org/wiki/Treasur ... d_SecurityParkinglotracer wrote: ↑Fri May 06, 2022 8:01 am I have an mba and think I am educated on how bonds and financial markets work. TIPs just seem like “magic and mirrors”. Can someone explain this in a basic and simple manner?
Re: TIPs: The final year in the life of a 5 year TIP
TIPS have a fixed nominal yield. The principal is adjusted for inflation according to the CPI. That's where the inflation protection comes from, principal plus inflation returned to you at maturity. Of course if the principal goes up, the absolute value of the interest payments goes up too. Like other Treasuries, they can be issued at a discount or premium. Premium can give you a negative real yield, which could be positive nominal yield.
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Re: TIPs: The final year in the life of a 5 year TIP
Great place to start thanks.gmaynardkrebs wrote: ↑Fri May 06, 2022 8:55 amhttps://www.bogleheads.org/wiki/Treasur ... d_SecurityParkinglotracer wrote: ↑Fri May 06, 2022 8:01 am I have an mba and think I am educated on how bonds and financial markets work. TIPs just seem like “magic and mirrors”. Can someone explain this in a basic and simple manner?
Re: TIPs: The final year in the life of a 5 year TIP
Thanks for posting!grok87 wrote: ↑Fri Apr 15, 2022 8:45 am I own a TIPs bond that will mature 1 year from today- i.e. 4/15/2023. In this thread i plan to track what happens over the next year.
Here is my motivation- i.e. actionability:
I've always been curious about what happens to TIPs during their last year of life.My understanding is that the real yields become very erratic during the last year of life since the CPI they adjust off of is not seasonally adjusted. Perhaps for this reason the PIMCO short term tips excludes them STPZ
https://www.pimco.com/en-us/investments ... aded-fund/
as does the schwab etf SCHP fund which tracks this index
https://data.bloomberglp.com/profession ... ries-L.pdf
as does the regular vanguard fund VIPSX (or at least the index it is benchmarked against)
whereas the Vanguard fund VTAPX and the Ishares fund STIP include them. So are they are worthwhile investment or not? Should i be selling like VIPSX and SCHP are? or holding like VTAPX and STIP do?
Here is the data as of yesterday 4/14/2022:
Coupon: 0.625%
Price: 103.829
Real yield to maturity: -3.26%
Spread to treasuries = -5.05% (i.e. breakeven inflation is 5.05%)
reference nominal treasury =coupon 0.25% due 4/15/2023- (this must have been auctioned on 4/15/2021)
reference treasury yield 1.79% (=-3.26% - -5.05%) (note 1 year tbill is at 1.70%)
index factor 1.13773
Price including index factor: 118.265895
I think that's it. Will try to update at least weekly.
cheers,
grok
What if?
Price was $103.829.
You bought $103,829 worth four years ago.
About how much could you sell it for today?
Re: TIPs: The final year in the life of a 5 year TIP
I think the bonds were issued at close to par. I’ll Assume 100 but probably someone will correct me. Today you can sell for 118.29.
So 18.3% gain pretax
So 18.3% gain pretax
RIP Mr. Bogle.
- gmaynardkrebs
- Posts: 2319
- Joined: Sun Feb 10, 2008 11:48 am
Re: TIPs: The final year in the life of a 5 year TIP
From Fidelity quotes downloaded shortly before close on Friday, for the 4/15/2023 I get this:
Ask yield: -2.83%
Ask yield, seasonally adjusted: -2.88%
BEI (Nominal - real): 4.91%
BEI using a #Cruncher calculation (not the XIRR one): 4.24%
BEI (nominal - real), seasonally adjusted: 4.96%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 4.38%
For the shortest-term TIPS, maturing 7/15/2022:
Ask yield: -9.12%
Ask yield, seasonally adjusted: -7.56%
BEI (Nominal - real): 9.75%
BEI using a #Cruncher calculation (not the XIRR one): 7.64%
BEI (nominal - real), seasonally adjusted: 8.18%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 5.49%
I pay attention to seasonally adjusted yields when buying TIPS.
Kevin
Ask yield: -2.83%
Ask yield, seasonally adjusted: -2.88%
BEI (Nominal - real): 4.91%
BEI using a #Cruncher calculation (not the XIRR one): 4.24%
BEI (nominal - real), seasonally adjusted: 4.96%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 4.38%
For the shortest-term TIPS, maturing 7/15/2022:
Ask yield: -9.12%
Ask yield, seasonally adjusted: -7.56%
BEI (Nominal - real): 9.75%
BEI using a #Cruncher calculation (not the XIRR one): 7.64%
BEI (nominal - real), seasonally adjusted: 8.18%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 5.49%
I pay attention to seasonally adjusted yields when buying TIPS.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: TIPs: The final year in the life of a 5 year TIP
I buy and hold individual TIPS, bought at auction. This thread reminded me why I avoid the secondary market.
Re: TIPs: The final year in the life of a 5 year TIP
well that's a tricky question to answer. perhaps someone else will dive into the details. the answer below will be somewhat wrong. but here is a rough way to think about it:
buy at par = 100
inflation adjusted principal today (at year 4) = 114.615
average adjusted principal for coupons paid over those for years = 108.22
number of coupon payments 8
estimated coupon payments = 8*108.22*0.625%/2 = $2.706
cheers,
grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
agreedgmaynardkrebs wrote: ↑Sat May 07, 2022 9:08 pmAlthough, I think you've already paid the tax on the inflation adj as OID, unless in an IRA.
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
thanks. i didn't realize the fidelity quotes gave you seasonally adjusted real yields.Kevin M wrote: ↑Sat May 07, 2022 9:33 pm From Fidelity quotes downloaded shortly before close on Friday, for the 4/15/2023 I get this:
Ask yield: -2.83%
Ask yield, seasonally adjusted: -2.88%
BEI (Nominal - real): 4.91%
BEI using a #Cruncher calculation (not the XIRR one): 4.24%
BEI (nominal - real), seasonally adjusted: 4.96%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 4.38%
For the shortest-term TIPS, maturing 7/15/2022:
Ask yield: -9.12%
Ask yield, seasonally adjusted: -7.56%
BEI (Nominal - real): 9.75%
BEI using a #Cruncher calculation (not the XIRR one): 7.64%
BEI (nominal - real), seasonally adjusted: 8.18%
BEI using a #Cruncher calculation (not the XIRR one), seasonally adjusted: 5.49%
I pay attention to seasonally adjusted yields when buying TIPS.
Kevin
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
They don't. I download the quotes into a spreadsheet, and calculate the seasonal adjustment using a method published by Paul Canty. Previously I used a method shared by #Cruncher, but the Canty approach is much simpler, and results agree with the #Cruncher method.
Relevant posts:
TIPS yield curve and seasonal adjustment update
Re: TIPs ladder mavens: help me understand some yield anomalies
The Canty paper:
Seasonally adjusted pricesfor inflation-linked bonds
Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: TIPs: The final year in the life of a 5 year TIP
Some details: the adjusted auction price was 100.196611 and the sum of the 8 coupon payments was $2.637 per $100 par.grok87 wrote: ↑Sun May 08, 2022 8:10 am well that's a tricky question to answer. perhaps someone else will dive into the details. the answer below will be somewhat wrong. but here is a rough way to think about it:
buy at par = 100
inflation adjusted principal today (at year 4) = 114.615
average adjusted principal for coupons paid over those for years = 108.22
number of coupon payments 8
estimated coupon payments = 8*108.22*0.625%/2 = $2.706
Re: TIPs: The final year in the life of a 5 year TIP
thank you!FactualFran wrote: ↑Sun May 08, 2022 11:44 amSome details: the adjusted auction price was 100.196611 and the sum of the 8 coupon payments was $2.637 per $100 par.grok87 wrote: ↑Sun May 08, 2022 8:10 am well that's a tricky question to answer. perhaps someone else will dive into the details. the answer below will be somewhat wrong. but here is a rough way to think about it:
buy at par = 100
inflation adjusted principal today (at year 4) = 114.615
average adjusted principal for coupons paid over those for years = 108.22
number of coupon payments 8
estimated coupon payments = 8*108.22*0.625%/2 = $2.706
cheers,
grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
thanksKevin M wrote: ↑Sun May 08, 2022 11:35 amThey don't. I download the quotes into a spreadsheet, and calculate the seasonal adjustment using a method published by Paul Canty. Previously I used a method shared by #Cruncher, but the Canty approach is much simpler, and results agree with the #Cruncher method.
Relevant posts:
TIPS yield curve and seasonal adjustment update
Re: TIPs ladder mavens: help me understand some yield anomalies
The Canty paper:
Seasonally adjusted pricesfor inflation-linked bonds
Kevin
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
We can calculate the real and nominal return for a TIPS bought at the original auction in April 2018 and sold at Friday's price. Using Excel's XIRR function I get a 1.42% real return and a 4.84% nominal return shown at the bottom of this table:
Code: Select all
Face value 10,000
Matures 4/15/2023
Coupon 0.625%
Date Real $ Idx Ratio Nominal $
Code: Select all
4/30/2018 (9,997.07) 1.00226 (10,019.66) <-- purchase
4/30/2018 (2.56) 1.00226 (2.57) <-- accrued interest
10/15/2018 31.25 1.01481 31.71 <-- interest payment
4/15/2019 31.25 1.01537 31.73 v v v
10/15/2019 31.25 1.03291 32.28
4/15/2020 31.25 1.03989 32.50
10/15/2020 31.25 1.04460 32.64
4/15/2021 31.25 1.05579 32.99
10/15/2021 31.25 1.10011 34.38
4/15/2022 31.25 1.13670 35.52
5/09/2022 4.10 1.14615 4.70 <-- accrued interest
5/09/2022 10,321.88 1.14615 11,830.42 <-- sale
Sum 576.34 2,076.64
XIRR 1.42% 4.84%
- This web page for auction prices and most index ratios
- This web page for index ratio 5/9/2022 (settlement date for trade on Friday)
- Friday's WSJ TIPS Quotes for 103+7/32 bid price
Last edited by #Cruncher on Sat May 14, 2022 6:46 pm, edited 1 time in total.
Re: TIPs: The final year in the life of a 5 year TIP
thanks#Cruncher wrote: ↑Sun May 08, 2022 1:08 pmWe can calculate the real and nominal return for a TIPS bought at the original auction in April 2018 and sold at Friday's price. Using Excel's XIRR function I get a 1.42% real return and a 4.84% nominal return shown at the bottom of this table:
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
Thanks Grok and #Cruncher!
Most useful!
I followed #Cruncher's links. I have lots to learn.
As usual, I never fully learn something until I own it.
Most useful!
I followed #Cruncher's links. I have lots to learn.
As usual, I never fully learn something until I own it.
Re: TIPs: The final year in the life of a 5 year TIP
And the inflation adjustment has a three-month lag. A TIPS maturing in August will have its inflation adjustment for the next three months based on February-April inflation, not the May-July inflation which will actually affect the investor's purchasing power.billyt wrote: ↑Fri May 06, 2022 8:59 am TIPS have a fixed nominal yield. The principal is adjusted for inflation according to the CPI. That's where the inflation protection comes from, principal plus inflation returned to you at maturity. Of course if the principal goes up, the absolute value of the interest payments goes up too. Like other Treasuries, they can be issued at a discount or premium. Premium can give you a negative real yield, which could be positive nominal yield.
This causes unusual spreads to inflation in the yields of shorter-term TIPS. In the example above, if inflation in the previous quarter was 2% and inflation in the next quarter is expected to be 1%, the adjustment would fall short of inflation by 1%, and the TIPS would have to have an annual yield 4% higher than the real annual yield to make up for it.
Re: TIPs: The final year in the life of a 5 year TIP
update for may 20th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
cheers,
grok
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
cheers,
grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
update for june 6th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
nothing too surprising here: price continues to grind toward par. it's a litle surprising the spread to treasuries- which is sort of but not quite the breakeven inflation because of the 3 month lag- has increased. that's a little surprising to me but may relate to seasonality.
Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
cheers,
grok
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
nothing too surprising here: price continues to grind toward par. it's a litle surprising the spread to treasuries- which is sort of but not quite the breakeven inflation because of the 3 month lag- has increased. that's a little surprising to me but may relate to seasonality.
Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
cheers,
grok
RIP Mr. Bogle.
-
- Posts: 1820
- Joined: Sat Feb 21, 2015 2:29 pm
Re: TIPs: The final year in the life of a 5 year TIP
The index factor is calculated using month-to-month changes in the CPI-U. The daily inflation indexing for May 2022 was calculated using the CPI-U values for February 2022 (283.716) and March 2022 (287.504). A monthly change of 1.34%. With the inflation indexing for June 2022, the monthly change was 0.56%.grok87 wrote: ↑Tue Jun 07, 2022 6:56 am Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
Re: TIPs: The final year in the life of a 5 year TIP
Below are charts of BEI for short-term TIPS based on quotes pulled from Fidelity on Friday afternoon. Both chose standard BEI (nom - real) and BEI using a #Cruncher formula that incorporates the latest ref CPI. The second chart uses seasonally adjusted TIPS yields in the calculations.grok87 wrote: ↑Tue Jun 07, 2022 6:56 am update for june 6th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
nothing too surprising here: price continues to grind toward par. it's a litle surprising the spread to treasuries- which is sort of but not quite the breakeven inflation because of the 3 month lag- has increased. that's a little surprising to me but may relate to seasonality.
Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
cheers,
grok
I've truncated vertical axis so we see more resolution at the maturity of interest.


For the 4/15/2023 TIPS, yield is -2.77% and SA yield is -2.95%. Nominal yield used for comparison is 2.19%.
BEI (#Cruncher): 4.94%
BEI (#Cruncher SA): 5.39%
BEI (std): 4.96%
BEI SA (std): 5.14%
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: TIPs: The final year in the life of a 5 year TIP
Thanks. I’m not sure i’m following though. At this point this bond has 10 months till it matures. The inflation adjustment for 3 of those months is known. Do any of these figures tell me what the bei is for those 7 months?Kevin M wrote: ↑Tue Jun 07, 2022 1:46 pmBelow are charts of BEI for short-term TIPS based on quotes pulled from Fidelity on Friday afternoon. Both chose standard BEI (nom - real) and BEI using a #Cruncher formula that incorporates the latest ref CPI. The second chart uses seasonally adjusted TIPS yields in the calculations.grok87 wrote: ↑Tue Jun 07, 2022 6:56 am update for june 6th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
nothing too surprising here: price continues to grind toward par. it's a litle surprising the spread to treasuries- which is sort of but not quite the breakeven inflation because of the 3 month lag- has increased. that's a little surprising to me but may relate to seasonality.
Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
cheers,
grok
I've truncated vertical axis so we see more resolution at the maturity of interest.
For the 4/15/2023 TIPS, yield is -2.77% and SA yield is -2.95%. Nominal yield used for comparison is 2.19%.
BEI (#Cruncher): 4.94%
BEI (#Cruncher SA): 5.39%
BEI (std): 4.96%
BEI SA (std): 5.14%
Kevin
Cheers
Grok
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
As of today, the latest ref CPI we have is for July 1 (based on April CPI; in 2 days we will have it for Aug 1 based on May CPI). So we only know the inflation adjustment for the rest of June as of today, not three months.grok87 wrote: ↑Wed Jun 08, 2022 12:26 pmThanks. I’m not sure i’m following though. At this point this bond has 10 months till it matures. The inflation adjustment for 3 of those months is known. Do any of these figures tell me what the bei is for those 7 months?Kevin M wrote: ↑Tue Jun 07, 2022 1:46 pmBelow are charts of BEI for short-term TIPS based on quotes pulled from Fidelity on Friday afternoon. Both chose standard BEI (nom - real) and BEI using a #Cruncher formula that incorporates the latest ref CPI. The second chart uses seasonally adjusted TIPS yields in the calculations.grok87 wrote: ↑Tue Jun 07, 2022 6:56 am update for june 6th
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
nothing too surprising here: price continues to grind toward par. it's a litle surprising the spread to treasuries- which is sort of but not quite the breakeven inflation because of the 3 month lag- has increased. that's a little surprising to me but may relate to seasonality.
Index factor has increased by 0.51429% (1.15897/1.15304) for the 17 days since i last posted. that seems a little high. it seems to annualize to 11.64% since 1.0051429^(365/17) = 1.1164. i suppose this might be the seasonality of CPI rearing its ugly (actually beautiful in this case) head?
cheers,
grok
I've truncated vertical axis so we see more resolution at the maturity of interest.
For the 4/15/2023 TIPS, yield is -2.77% and SA yield is -2.95%. Nominal yield used for comparison is 2.19%.
BEI (#Cruncher): 4.94%
BEI (#Cruncher SA): 5.39%
BEI (std): 4.96%
BEI SA (std): 5.14%
Kevin
Cheers
Grok
The "#Cruncher" values (BEI and BEI SA on the charts) incorporate the latest ref CPI (July 1) into the BEI calculations. The seasonally adjusted #Cruncher value probably is the most meaningful.
Kevin
If I make a calculation error, #Cruncher probably will let me know.
Re: TIPs: The final year in the life of a 5 year TIP
thanksKevin M wrote: ↑Wed Jun 08, 2022 2:09 pm
As of today, the latest ref CPI we have is for July 1 (based on April CPI; in 2 days we will have it for Aug 1 based on May CPI). So we only know the inflation adjustment for the rest of June as of today, not three months.
The "#Cruncher" values (BEI and BEI SA on the charts) incorporate the latest ref CPI (July 1) into the BEI calculations. The seasonally adjusted #Cruncher value probably is the most meaningful.
Kevin
RIP Mr. Bogle.
Re: TIPs: The final year in the life of a 5 year TIP
update for june 21
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
6/21/22 102.289 -2.156% -4.895% 1.1622 118.754
nothing too surprising here.
price continues to drop toward 100 where it will be at maturity and real yield to rise to 0.625%. spread to treasuries pretty much unchanged.
Date Price (Ask) Real yield Spread to treasuries Index factor Price inc. index factor
4/14/2022 103.829 -3.26% -5.05% 1.13773 118.12936817
4/19/2022 103.835 -3.172% -5.086% 1.13842 118.207840
5/5/2022 103.203 -2.735% -4.81% 1.14615 118.286118
5/20/22 103.145 -2.815% -4.755% 1.15304 118.930
6/6/22 102.960 -2.782% -4.931% 1.15897 119.327551
6/21/22 102.289 -2.156% -4.895% 1.1622 118.754
nothing too surprising here.
price continues to drop toward 100 where it will be at maturity and real yield to rise to 0.625%. spread to treasuries pretty much unchanged.
RIP Mr. Bogle.