First time TIPS buyer. Who buys on secondary market?
First time TIPS buyer. Who buys on secondary market?
I’ve never purchased TIPS before. I know you can purchase them when they come up for auction at Treasury Direct but I would like to purchase a TIPS ladder on the secondary market within my Vanguard IRA. I know that current rates for new issues are favorable. My question is, how do I know if I’m getting a fair rate for TIPS purchased on the secondary market? I’m thinking that the current price of any offered for sale would be adjusted to reflect current rates offered for new issues, but I don’t know.
Is this true? If not, what key factors should I be looking at?
Is this true? If not, what key factors should I be looking at?
Re: First time TIPS buyer. Who buys on secondary market?
I don't buy individual Tips anymore but when I did, it was always on the secondary market.
When you pull up the bond search on a brokerage site, or if you work directly with the bond desk they will give you the going bid and ask prices for any cusip you might be interested in.
Treasury notes are probably the most liquid asset in the world. Secondary rates will not differ from auctions by a material amount.
When you pull up the bond search on a brokerage site, or if you work directly with the bond desk they will give you the going bid and ask prices for any cusip you might be interested in.
Treasury notes are probably the most liquid asset in the world. Secondary rates will not differ from auctions by a material amount.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: First time TIPS buyer. Who buys on secondary market?
As long as the spread between buy and sell is fairly small, you can rest assured that you're getting a decent price. Otherwise one of the many thousands of hedge funds/quants/etc. would hoover up that value.
Re: First time TIPS buyer. Who buys on secondary market?
Following with interest.
- jeffyscott
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Re: First time TIPS buyer. Who buys on secondary market?
Rates aren't "offered" for new issues, they are set by an auction.Woodshark wrote: Mon Feb 03, 2025 9:20 am ...I know that current rates for new issues are favorable. My question is, how do I know if I’m getting a fair rate for TIPS purchased on the secondary market? I’m thinking that the current price of any offered for sale would be adjusted to reflect current rates offered for new issues, but I don’t know.
The secondary market is also, essentially, another type of auction with buyers and sellers making bid and ask offers. You will see the real yield in the "ask" offers to sell any secondary TIPS that are available.
You can buy in the Treasury auctions through Vanguard as well, there's no need to use Treasury direct even if you only want to buy new issues.
Re: First time TIPS buyer. Who buys on secondary market?
I am in my early 70s and built my ladder in January of 2024 and most of my rungs were purchased on the secondary market.
In order to minimize subsequent maintenance I only purchased bonds that mature in January or February (in later years where no January maturities were available).
I don't care about the semi annual interest I only care about having $X in inflation protected funds each year going forward. Because of this I only focused on the YTM. All of my rungs have a YTM in excess of 1.5% and some exceed 2.0%.
In my case I scaled $X so it in conjunction with SS provides enough to meet all of our mandatory and some of our discretionary expenses. My TIPS ladder comprises 18% of my portfolio.
In order to minimize subsequent maintenance I only purchased bonds that mature in January or February (in later years where no January maturities were available).
I don't care about the semi annual interest I only care about having $X in inflation protected funds each year going forward. Because of this I only focused on the YTM. All of my rungs have a YTM in excess of 1.5% and some exceed 2.0%.
In my case I scaled $X so it in conjunction with SS provides enough to meet all of our mandatory and some of our discretionary expenses. My TIPS ladder comprises 18% of my portfolio.
Re: First time TIPS buyer. Who buys on secondary market?
Fluctuations in price, even over short periods of time, can greatly exceed the bid-ask spread on the secondary market. Also, you get to see exactly what you'll get before you confirm that purchase. I don't see any reason to wait for auctions.
Re: First time TIPS buyer. Who buys on secondary market?
At most major brokerages, I think, you can see the bid and the ask for a specific issue of TIPS, so you can see how wide the spread is and if you think you're getting a "fair" price.
(Note that seeing both a bid and an ask is NOT true for many bonds - munis, probably some corporates, etc, because there are more issuers and thinner liquidity for those, but for TIPS you generally should be able to see the bid/ask).
You can also look at this link which shows the inferred yield and different maturities:
https://home.treasury.gov/resource-cent ... value=2025
It goes through the close of the previous trading day, so will be a bit stale (prices may have moved), AND it infers yields at different maturities (there are only a limited number of TIPS issues outstanding, so there's rarely one that lines up EXACTLY with a specific maturity). Those limitations aside, it's a good & useful tool, IMO.
Note that at shorter maturities in particular, there can be some apparent anomalies in yield (some higher or lower than they should be) because TIPS use, IIUC, non-seasonally adjusted CPI, which is in fact somewhat predictable (higher in some seasons than others), and the TIPS yields sorta counteract that.
(Note that seeing both a bid and an ask is NOT true for many bonds - munis, probably some corporates, etc, because there are more issuers and thinner liquidity for those, but for TIPS you generally should be able to see the bid/ask).
You can also look at this link which shows the inferred yield and different maturities:
https://home.treasury.gov/resource-cent ... value=2025
It goes through the close of the previous trading day, so will be a bit stale (prices may have moved), AND it infers yields at different maturities (there are only a limited number of TIPS issues outstanding, so there's rarely one that lines up EXACTLY with a specific maturity). Those limitations aside, it's a good & useful tool, IMO.
Note that at shorter maturities in particular, there can be some apparent anomalies in yield (some higher or lower than they should be) because TIPS use, IIUC, non-seasonally adjusted CPI, which is in fact somewhat predictable (higher in some seasons than others), and the TIPS yields sorta counteract that.
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Re: First time TIPS buyer. Who buys on secondary market?
I purchased several TIPS on the secondary market using the Fidelity platform. Very easy. Very good value. Agree with others that there is no need to wait for an auction.
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Re: First time TIPS buyer. Who buys on secondary market?
If you're new to TIPS a great site to look at is https://tipswatch.com/
I'm a TIPS newbie, I've just done auction purchases in the last year. I'd encourage you to dip your toes into TIPS with an auction buy to get familiar with the process and the price gyrations as interest rates change. A TIPS maturity 30 years away is really subject to shifts in mark-to-market pricing, part of the yield curve will likely always be unfavorable. Mark-to-market pricing is something you may have to get used to ignoring with TIPS since you are buying a prospective but unknown maturity value. Yep the values change like flags flapping in the breeze.
There's no reason to rush into TIPS until you're very comfortable with them. I'm still somewhat ambivalent, they're very attractive to me but are not as well understood and appreciated by my potentially inheriting spouse.
One way of approaching a ladder could be acquiring small positions for each rung of the ladder and accumulating more for the rungs as respective prices weaken over time. That way you'll see opportunity in price declines.
I'm a TIPS newbie, I've just done auction purchases in the last year. I'd encourage you to dip your toes into TIPS with an auction buy to get familiar with the process and the price gyrations as interest rates change. A TIPS maturity 30 years away is really subject to shifts in mark-to-market pricing, part of the yield curve will likely always be unfavorable. Mark-to-market pricing is something you may have to get used to ignoring with TIPS since you are buying a prospective but unknown maturity value. Yep the values change like flags flapping in the breeze.
There's no reason to rush into TIPS until you're very comfortable with them. I'm still somewhat ambivalent, they're very attractive to me but are not as well understood and appreciated by my potentially inheriting spouse.
One way of approaching a ladder could be acquiring small positions for each rung of the ladder and accumulating more for the rungs as respective prices weaken over time. That way you'll see opportunity in price declines.
The closest helping hand is at the end of your own arm.
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Re: First time TIPS buyer. Who buys on secondary market?
Bought my entire 30-yr TIPS ladder on secondary market.
Credibility ... some posters have it.
Re: First time TIPS buyer. Who buys on secondary market?
As others have pointed out, the price paid for TIPS will be fair in the secondary market and reflect current real yields.
That leaves the more important question as to which TIPS to purchase for each run on the ladder.
My approach to purchasing TIPS to buy the most recent one released that matures at the target date I am seeking. For example, for the 10-year rung, rather than purchase a 30-year TIPS that has 10 years to maturity, better to purchase a recently issued TIPS with 10 years to maturity.
The reason is that when a TIPS matures the holder receives the higher of the adjusted principal amount or the face value. The face value is the original principal balance when the TIPS was issued. Investors who buy TIPS at auction and hold them to maturity will not suffer a loss even during an extended deflationary period when prices fall because they are guaranteed to receive the face value. Investors who buy TIPS in the secondary market at a price above face value could suffer a loss if the adjusted principal value due to inflation falls below the price paid for the TIPS. So the key is to purchase TIPS with the smallest difference between the face value and the adjusted principal balance.
Of course, an extended period of deflation is unlikely, but you never know.
That leaves the more important question as to which TIPS to purchase for each run on the ladder.
My approach to purchasing TIPS to buy the most recent one released that matures at the target date I am seeking. For example, for the 10-year rung, rather than purchase a 30-year TIPS that has 10 years to maturity, better to purchase a recently issued TIPS with 10 years to maturity.
The reason is that when a TIPS matures the holder receives the higher of the adjusted principal amount or the face value. The face value is the original principal balance when the TIPS was issued. Investors who buy TIPS at auction and hold them to maturity will not suffer a loss even during an extended deflationary period when prices fall because they are guaranteed to receive the face value. Investors who buy TIPS in the secondary market at a price above face value could suffer a loss if the adjusted principal value due to inflation falls below the price paid for the TIPS. So the key is to purchase TIPS with the smallest difference between the face value and the adjusted principal balance.
Of course, an extended period of deflation is unlikely, but you never know.
Re: First time TIPS buyer. Who buys on secondary market?
I had heard once that you don't get the best rate/price on TIPS in the secondary market unless you're buying or selling a large quantity. I don't remember exactly what a "large quantity" was, but it might have been $50-100K. Have all y'all experienced this? Does it depend on the brokerage?
Re: First time TIPS buyer. Who buys on secondary market?
This really depends on where you buy them. Treasuries are not yet all centrally cleared, so the bid/ask spreads can be wildly different at different brokerages. When TD Ameritrade was still active, their TIPS selection appeared to be abysmal and expensive.jebmke wrote: Mon Feb 03, 2025 9:22 am Treasury notes are probably the most liquid asset in the world. Secondary rates will not differ from auctions by a material amount.
I agree that if the bid/ask spread is small, you are likely getting a decent price.
When I looked, I usually see decent prices at Fidelity and Vanguard, and better ones at Schwab. I generally buy in very small quantities.
Note that the Treasury market is expected to start to move to central clearing by the end of this year. Perhaps this will result in narrower bid/ask spreads at all brokerages.
Yes, it depends on the brokerage. When I buy at Schwab, I can sometimes get better rates for one bond than I could at Fidelity at any quantity.w5000 wrote: Mon Feb 03, 2025 11:57 pm I had heard once that you don't get the best rate/price on TIPS in the secondary market unless you're buying or selling a large quantity. I don't remember exactly what a "large quantity" was, but it might have been $50-100K. Have all y'all experienced this? Does it depend on the brokerage?
- jeffyscott
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Re: First time TIPS buyer. Who buys on secondary market?
In addition to varying by brokerage it varies within a brokerage by issue and time.
Here's one post about it, there are many more in that discussion: viewtopic.php?p=8169368#p8169368
I think Schwab has been more consistent with offering their best price at min. 1 for nominals than for TIPS. Fidelity is now apparently often offering best price with min. 5 (but this doesn't necessarily mean their best is better than Schwab's). I have no direct experience, but my sense is that Vanguard is less likely than Schwab or Fidelity to offer the best price on small quantities.
A few years ago I tried to compare TIPS pricing at Fidelity and Schwab. At the time, I think Fidelity usually had a lower best price, but only if buying 50 or more (so $50K+). Schwab had better pricing on smaller quantities and usually their best price had min. of 1 bond (so ~$1000-2000 of inflation adjusted value).
All these differences are usually pretty small, though.
Here's one post about it, there are many more in that discussion: viewtopic.php?p=8169368#p8169368
I think Schwab has been more consistent with offering their best price at min. 1 for nominals than for TIPS. Fidelity is now apparently often offering best price with min. 5 (but this doesn't necessarily mean their best is better than Schwab's). I have no direct experience, but my sense is that Vanguard is less likely than Schwab or Fidelity to offer the best price on small quantities.
A few years ago I tried to compare TIPS pricing at Fidelity and Schwab. At the time, I think Fidelity usually had a lower best price, but only if buying 50 or more (so $50K+). Schwab had better pricing on smaller quantities and usually their best price had min. of 1 bond (so ~$1000-2000 of inflation adjusted value).
All these differences are usually pretty small, though.
Re: First time TIPS buyer. Who buys on secondary market?
I do. I've bought all my TIPS on the secondary market.
I place trades when the bond market is open.
My assumption is that prices are reasonable because the market is big enough with sufficient buyers and sellers.
I don't worry that as a small retail investor I won't get the best price; maybe I lose few basis points. C'est la vie.
Re: First time TIPS buyer. Who buys on secondary market?
Over the past few months, I've built a 15 year TIPS ladder (mid 6 figures) by buying it all on the secondary market. I prefer the secondary market as I know exactly what rate I'm getting and I wanted to build the ladder now while rates are attractive. If I had to wait for auctions, it would have taken many years to build the ladder and who knows what the rates would be at the time.
Re: First time TIPS buyer. Who buys on secondary market?
I've bought almost all TIPS on secondary for my family and me. We have an active ongoing discussion about trading Treasuries, including TIPS. Here's a link to a post from today, in which we discussed bid/ask spreads at Schwab:
Trading Treasuries (nominal and TIPS)
Trading Treasuries (nominal and TIPS)
If I make a calculation error, #Cruncher probably will let me know.
Re: First time TIPS buyer. Who buys on secondary market?
To do a TIPS ladder all at once, the secondary market is the only choice.Woodshark wrote: Mon Feb 03, 2025 9:20 am I know you can purchase them when they come up for auction at Treasury Direct but I would like to purchase a TIPS ladder on the secondary market within my Vanguard IRA.
I think that the prices on Vanguard are fair and I don't worry about that when building a ladder.
Purchases outside of the ladder? I would try to buy those at auction because TIPS bought at auction and held to maturity pay as promised to the penny.
TIPS are complex. I've read every discussion for years. I've owned TIPS individually and in funds and ETFs for years. I never started to really understand them until I bought ten $1K issues at auction and on the secondary market. I held them for a week and sold them all. I'm still learning.
Bottom Line: I had to buy and sell individual TIPS to start to learn them in detail. For me, reading isn't always understanding. I need the actual experience.