TIPS go Crazy!

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watchnerd
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Re: TIPS go Crazy!

Post by watchnerd » Mon Mar 23, 2020 8:24 pm

JohnDoh wrote:
Mon Mar 23, 2020 8:20 pm
Any ideas as to where this goes from here over the next few days? Is the current yield curve likely to be stable? Continue to decrease? Bounce back up?

Enquiring minds would like to know! :beer
Haha funny!

The ability to time interest rates successfully would be even better than the ability to time stocks.
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JohnDoh
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Re: TIPS go Crazy!

Post by JohnDoh » Mon Mar 23, 2020 8:30 pm

watchnerd wrote:
Mon Mar 23, 2020 8:24 pm
JohnDoh wrote:
Mon Mar 23, 2020 8:20 pm
Any ideas as to where this goes from here over the next few days? Is the current yield curve likely to be stable? Continue to decrease? Bounce back up?

Enquiring minds would like to know! :beer
Haha funny!

The ability to time interest rates successfully would be even better than the ability to time stocks.
In normal times, I'd agree with you (of course). But perhaps FED actions make this (mildly?) more knowable now than at other times?

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watchnerd
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Re: TIPS go Crazy!

Post by watchnerd » Mon Mar 23, 2020 8:33 pm

JohnDoh wrote:
Mon Mar 23, 2020 8:30 pm


In normal times, I'd agree with you (of course). But perhaps FED actions make this (mildly?) more knowable now than at other times?
Go for it...what's your prediction?
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Re: TIPS go Crazy!

Post by JohnDoh » Mon Mar 23, 2020 8:34 pm

watchnerd wrote:
Mon Mar 23, 2020 8:33 pm
JohnDoh wrote:
Mon Mar 23, 2020 8:30 pm


In normal times, I'd agree with you (of course). But perhaps FED actions make this (mildly?) more knowable now than at other times?
Go for it...what's your prediction?
No fair! I asked first! :sharebeer

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Re: TIPS go Crazy!

Post by tipswatcher » Mon Mar 23, 2020 9:23 pm

Any ideas as to where this goes from here over the next few days?
Based on the last two weeks, I'd say real yields could go up -- or down -- about 200 basis points.
TIPS: Perfect investment for imperfect times?

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Random Musings
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Re: TIPS go Crazy!

Post by Random Musings » Mon Mar 23, 2020 9:50 pm

FWIW, I was a long term holder of 2040 2.125%, I partially backed up the truck on that one as I bought below par. Today, at 137 and something I thought it was time to unload it. With the Fed policy and the belief that the world isn't going to end, I think there will be opportunities to back up the truck again. Perhaps it will be different this time, but that's the same line that's used for equities.

RM
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Re: TIPS go Crazy!

Post by grok87 » Tue Mar 24, 2020 4:51 am

tipswatcher wrote:
Mon Mar 23, 2020 9:23 pm
Any ideas as to where this goes from here over the next few days?
Based on the last two weeks, I'd say real yields could go up -- or down -- about 200 basis points.
agree. i think long tips yields bottomed out at -0.50% and then hit like 0.80%. so that's a 130 bp swing. based on that i think a 200 bp swing is certainly possible.
RIP Mr. Bogle.

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Re: TIPS go Crazy!

Post by halfnine » Tue Mar 24, 2020 4:59 am

After the post on the 17th I started paying closer attention and was close to backing up the truck on the 18th but not close enough. I think there might be one more swing but I am putting it at 50/50.

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Re: TIPS go Crazy!

Post by JohnDoh » Tue Mar 24, 2020 7:12 am

halfnine wrote:
Tue Mar 24, 2020 4:59 am
After the post on the 17th I started paying closer attention and was close to backing up the truck on the 18th but not close enough. I think there might be one more swing but I am putting it at 50/50.
I bought LTPZ on 3/18 @ $65.65. This morning it's @ $79.90 (+21.71%). I think today might be a good day to get out. If another swing happens, then I'd probably try the same thing again.

My regret is that I didn't "back up the truck" on 3/18. I was uncertain and a bit nervous and so only "pushed in a wheelbarrow". In hindsight this coulda been my George Soros moment. :oops: OTOH, these gains have more or less offset the rebalancing equity purchase I've made since the rout began, so I'm more or less neutral with respect to new money deployed. I guess I should (and will! :happy) be happy with that.

Thanks for all for your insights. I literally could not (would not) have done it without you.

John Doh

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Re: TIPS go Crazy!

Post by grok87 » Tue Mar 24, 2020 7:27 am

JohnDoh wrote:
Tue Mar 24, 2020 7:12 am
halfnine wrote:
Tue Mar 24, 2020 4:59 am
After the post on the 17th I started paying closer attention and was close to backing up the truck on the 18th but not close enough. I think there might be one more swing but I am putting it at 50/50.
I bought LTPZ on 3/18 @ $65.65. This morning it's @ $79.90 (+21.71%). I think today might be a good day to get out. If another swing happens, then I'd probably try the same thing again.

My regret is that I didn't "back up the truck" on 3/18. I was uncertain and a bit nervous and so only "pushed in a wheelbarrow". In hindsight this coulda been my George Soros moment. :oops: OTOH, these gains have more or less offset the rebalancing equity purchase I've made since the rout began, so I'm more or less neutral with respect to new money deployed. I guess I should (and will! :happy) be happy with that.

Thanks for all for your insights. I literally could not (would not) have done it without you.

John Doh
congrats
RIP Mr. Bogle.

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Re: TIPS go Crazy!

Post by JohnDoh » Tue Mar 24, 2020 7:38 am

grok87 wrote:
Tue Mar 24, 2020 7:27 am
JohnDoh wrote:
Tue Mar 24, 2020 7:12 am
halfnine wrote:
Tue Mar 24, 2020 4:59 am
After the post on the 17th I started paying closer attention and was close to backing up the truck on the 18th but not close enough. I think there might be one more swing but I am putting it at 50/50.
I bought LTPZ on 3/18 @ $65.65. This morning it's @ $79.90 (+21.71%). I think today might be a good day to get out. If another swing happens, then I'd probably try the same thing again.

My regret is that I didn't "back up the truck" on 3/18. I was uncertain and a bit nervous and so only "pushed in a wheelbarrow". In hindsight this coulda been my George Soros moment. :oops: OTOH, these gains have more or less offset the rebalancing equity purchase I've made since the rout began, so I'm more or less neutral with respect to new money deployed. I guess I should (and will! :happy) be happy with that.

Thanks for all for your insights. I literally could not (would not) have done it without you.

John Doh
congrats
Thanks. (And thanks for all your LMP posts. I follow them -- in several senses of the word. You, bobcat2, and a few others really helped me be well-positioned for this s#%tstorm -- despite the fact that only a few short weeks ago I was feeling like a bit of a dope for missing out on the tail end of the greatest bull market in history ... :shock: .)

EDIT: “A teacher affects eternity; he can never tell where his influence stops.” ― Henry Adams :beer

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vineviz
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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 7:48 am

I was a little slow to move, but I purchased some 2042 TIPS yesterday. The yield moved away from me a little bit, but I'm comfortable with the expected real return over the life of that bond.

The TIPS market seems to be pricing in a possibility of the deflation we saw in 1921-1924 or 1930-1933, and I feel comfortable switching some of my long-term bond allocation from nominal to inflation-indexed in the face of that.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIPS go Crazy!

Post by Angst » Tue Mar 24, 2020 8:35 am

Buying at auction was a gift this time, but how are BH's buying in the secondary market these days?
How do you bridge that gap between your pickup truck and the loading dock?

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%

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Re: TIPS go Crazy!

Post by grok87 » Tue Mar 24, 2020 8:38 am

JohnDoh wrote:
Tue Mar 24, 2020 7:38 am
grok87 wrote:
Tue Mar 24, 2020 7:27 am
JohnDoh wrote:
Tue Mar 24, 2020 7:12 am
halfnine wrote:
Tue Mar 24, 2020 4:59 am
After the post on the 17th I started paying closer attention and was close to backing up the truck on the 18th but not close enough. I think there might be one more swing but I am putting it at 50/50.
I bought LTPZ on 3/18 @ $65.65. This morning it's @ $79.90 (+21.71%). I think today might be a good day to get out. If another swing happens, then I'd probably try the same thing again.

My regret is that I didn't "back up the truck" on 3/18. I was uncertain and a bit nervous and so only "pushed in a wheelbarrow". In hindsight this coulda been my George Soros moment. :oops: OTOH, these gains have more or less offset the rebalancing equity purchase I've made since the rout began, so I'm more or less neutral with respect to new money deployed. I guess I should (and will! :happy) be happy with that.

Thanks for all for your insights. I literally could not (would not) have done it without you.

John Doh
congrats
Thanks. (And thanks for all your LMP posts. I follow them -- in several senses of the word. You, bobcat2, and a few others really helped me be well-positioned for this s#%tstorm -- despite the fact that only a few short weeks ago I was feeling like a bit of a dope for missing out on the tail end of the greatest bull market in history ... :shock: .)

EDIT: “A teacher affects eternity; he can never tell where his influence stops.” ― Henry Adams :beer
aw shucks, thanks for the kind words!
:beer
RIP Mr. Bogle.

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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 8:49 am

Angst wrote:
Tue Mar 24, 2020 8:35 am

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%
Posted spreads should not be nearly that wide when bond markets are open: are you looking during the day, or primary after hours?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIPS go Crazy!

Post by jeffyscott » Tue Mar 24, 2020 8:57 am

vineviz wrote:
Tue Mar 24, 2020 8:49 am
Angst wrote:
Tue Mar 24, 2020 8:35 am

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%
Posted spreads should not be nearly that wide when bond markets are open: are you looking during the day, or primary after hours?
Yes, they have been that wide, even when the market is open:
viewtopic.php?f=10&t=306517&p=5108807#p5108729
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Re: TIPS go Crazy!

Post by JohnDoh » Tue Mar 24, 2020 9:03 am

Sold out of LTPZ @ $80.50.

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Re: TIPS go Crazy!

Post by Angst » Tue Mar 24, 2020 9:14 am

vineviz wrote:
Tue Mar 24, 2020 8:49 am
Angst wrote:
Tue Mar 24, 2020 8:35 am

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%
Posted spreads should not be nearly that wide when bond markets are open: are you looking during the day, or primary after hours?
This is the price bid/ask for the FEB 2050 TIPS on Vanguard brokerage now:
104.914/110.570

and here's the 2042 you mentioned. It had been over 2% earlier this morning:
112.609/114.867

[EDIT] Not to belabor the point, but what I have below seems to me to be fairly typical for what I've been seeing over the last week or 10 days perhaps:

Code: Select all

TIPS Price Spreads @ Vanguard Brokerage ~10:20am ET 3/24/20
2050 bid/ask 105.554/111.210
2049 bid/ask 127.738/130.675
2048 bid/ask 126.789/129.820
2047 bid/ask 121.707/125.066
2046 bid/ask 124.710/126.968
2045 bid/ask 117.210/119.523
2044 bid/ask 130.859/132.988
2043 bid/ask 111.703/114.015
2042 bid/ask 113.007/115.328
2041 bid/ask 140.957/143.800

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vineviz
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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 9:43 am

Angst wrote:
Tue Mar 24, 2020 9:14 am
vineviz wrote:
Tue Mar 24, 2020 8:49 am
Angst wrote:
Tue Mar 24, 2020 8:35 am

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%
Posted spreads should not be nearly that wide when bond markets are open: are you looking during the day, or primary after hours?
This is the price bid/ask for the FEB 2050 TIPS on Vanguard brokerage now:
104.914/110.570

and here's the 2042 you mentioned. It had been over 2% earlier this morning:
112.609/114.867
It's true that the retail secondary market can be a little rough for very short-dated instruments (e.g. 18 months or less) and sometimes the very longest-dated instruments (e.g. the 2050 and, to a lesser degree, 2049 bonds).

I just spot-checked spreads at my brokerage across the curve and for the majority of the curve (from 2-years to 28-years) the average retail spread is less than 2.4%. And the bonds I bought yesterday executed well inside the spread, which is what you should expect.

Spreads are wider when liquidity is in high demand, but the impact is generally asymmetric: bid prices tend to gap down more than offer prices gap up. I wouldn't want to be selling the 2050 bonds if I didn't have too, but I feel confident that an honest brokerage firm will get you a good execution on your purchases.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 9:47 am

Angst wrote:
Tue Mar 24, 2020 9:14 am

[EDIT] Not to belabor the point, but what I have below seems to me to be fairly typical for what I've been seeing over the last week or 10 days perhaps:

Code: Select all

TIPS Price Spreads @ Vanguard Brokerage ~10:20am ET 3/24/20
2050 bid/ask 105.554/111.210
2049 bid/ask 127.738/130.675
2048 bid/ask 126.789/129.820
2047 bid/ask 121.707/125.066
2046 bid/ask 124.710/126.968
2045 bid/ask 117.210/119.523
2044 bid/ask 130.859/132.988
2043 bid/ask 111.703/114.015
2042 bid/ask 113.007/115.328
2041 bid/ask 140.957/143.800
Thanks for posting that: Vanguard's pricing is better than my brokerage by a little and the spreads are a bit narrower, but the overall trend is about what I'd expect which is spreads between 1.5% and 2.5% except for the few oddball cases.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIPS go Crazy!

Post by grok87 » Tue Mar 24, 2020 12:03 pm

and these are treasury bonds!
RIP Mr. Bogle.

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Re: TIPS go Crazy!

Post by FIREchief » Tue Mar 24, 2020 12:15 pm

Angst wrote:
Tue Mar 24, 2020 8:35 am
Buying at auction was a gift this time, but how are BH's buying in the secondary market these days?
How do you bridge that gap between your pickup truck and the loading dock?

I have routinely been seeing spreads on the price you have to pay of between 2 and 5%
I only focus on the "ask" ytm. I only buy TIPS to hold to maturity (ten year ladder), so the spread doesn't mean much to me. If I can get an acceptable ytm, then I'm fine buying in the secondary market.
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 Angst » Tue Mar 24, 2020 3:59 pm

FIREchief wrote:
Tue Mar 24, 2020 12:15 pm
I only focus on the "ask" ytm. I only buy TIPS to hold to maturity (ten year ladder), so the spread doesn't mean much to me. If I can get an acceptable ytm, then I'm fine buying in the secondary market.
I understand chief and don't fault your logic - the big thing is getting a decent rung in the ladder locked in place. I'm just cheap though, I can't bring myself to pay for a spread measured in 100's of basis points.

I think the bond market is archaic and needs to be improved. People (like you and I) ought to be able to enter limit orders for bonds. We could help shrink those spreads! Have you read that article Rick Ferri posted from ETF.com about the bond/bond ETF market? It gives me some hope that there will eventually be change. I quote some of it in another post.

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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 4:26 pm

Angst wrote:
Tue Mar 24, 2020 3:59 pm

I understand chief and don't fault your logic - the big thing is getting a decent rung in the ladder locked in place. I'm just cheap though, I can't bring myself to pay for a spread measured in 100's of basis points.
Remember that the spread isn't something you necessarily "pay for," and definitely not if you are buying and holding a bond until maturity.

Spread is basically a function of price uncertainty related to liquidity, and as I alluded earlier if you are supplying liquidity by purchasing bonds through a quality brokerage (like Vanguard or Fidelity) a wide spread should not be a concern. Assuming an ethical bond desk, it is the sellers who almost always take the haircut when liquidity is in short supply, not the buyers.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIPS go Crazy!

Post by Angst » Tue Mar 24, 2020 5:44 pm

vineviz wrote:
Tue Mar 24, 2020 4:26 pm
Angst wrote:
Tue Mar 24, 2020 3:59 pm
I understand chief and don't fault your logic - the big thing is getting a decent rung in the ladder locked in place. I'm just cheap though, I can't bring myself to pay for a spread measured in 100's of basis points.
Remember that the spread isn't something you necessarily "pay for," and definitely not if you are buying and holding a bond until maturity.

Spread is basically a function of price uncertainty related to liquidity, and as I alluded earlier if you are supplying liquidity by purchasing bonds through a quality brokerage (like Vanguard or Fidelity) a wide spread should not be a concern. Assuming an ethical bond desk, it is the sellers who almost always take the haircut when liquidity is in short supply, not the buyers.
I respect you and Firechief for your ability to intellectualize all of this - I think I do understand what you're saying, but I don't have to like it. :D I guess I'm too emotional. When I see those typical paper-thin spreads on nominal Treasuries, I don't want to buy into the 2% spreads we have on TIPS these days. Now they've always been higher than nominals, but they're not normally this much higher, so yes, liquidity is an issue.

I know that the following analogy isn't perfect, but in somewhat the same way that I would never place a market order on a thinly traded, new or obscure equity ETF that has a large spread, I can't bring myself to buy TIPS with a 2% spread, regardless of the quality of my brokerage bond desk.

Here's another way of looking at the current TIPS market: For every "me" out there who might have wanted to put in a high-limit order last week for TIPS somewhere in the middle of the spread, if the ability to do so even existed, there may well have been a "them" out there too who would have wanted to put in a low-limit order somewhere mid-spread on the same TIPS, if the ability to do so existed!

Therefor, I can claim with direct personal knowledge that at least some of the TIPS "price uncertainty related to liquidity" is actually related to shortcomings of the intrinsic bond market mechanism - it's not allowing "me" and "them" to enter limit orders. This is touched on in the ETF.com article that Rick posted.

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Re: TIPS go Crazy!

Post by watchnerd » Tue Mar 24, 2020 5:53 pm

FIREchief wrote:
Tue Mar 24, 2020 12:15 pm

I only focus on the "ask" ytm. I only buy TIPS to hold to maturity (ten year ladder), so the spread doesn't mean much to me. If I can get an acceptable ytm, then I'm fine buying in the secondary market.
Yeah...I only care about what the YTM is for me.

Like anything else in life, I don't care much about the seller's profit margins, only my personal utility.
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Re: TIPS go Crazy!

Post by vineviz » Tue Mar 24, 2020 7:30 pm

Angst wrote:
Tue Mar 24, 2020 5:44 pm
Here's another way of looking at the current TIPS market: For every "me" out there who might have wanted to put in a high-limit order last week for TIPS somewhere in the middle of the spread, if the ability to do so even existed, there may well have been a "them" out there too who would have wanted to put in a low-limit order somewhere mid-spread on the same TIPS, if the ability to do so existed!
No doubt the mechanics of bond markets could be improved. I don't disagree with you there.

My point really is only that the wide spreads you're seeing on TIPS might SEEM scary or even hurtful, but that's much more perception than reality.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: TIPS go Crazy!

Post by grok87 » Wed Mar 25, 2020 8:24 am

there's probably an interesting connection between the bid/ask spread of various bonds and the discounts to NAV that the associated ETFs have been trading at. for tips that would be VTIP and LTPZ and TIP i guess.
RIP Mr. Bogle.

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Re: TIPS go Crazy!

Post by JohnDoh » Wed Mar 25, 2020 8:48 am

grok87 wrote:
Wed Mar 25, 2020 8:24 am
for tips that would be VTIP and LTPZ and TIP i guess.
also SCHP [0.05 ER / $8.9B AUM] (Schwab's version of TIP [0.19 ER / $20B AUM])

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TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 12:01 pm

[Merged into the existing discussion -- mod oldcomputerguy]

At the start of the year, 5 and 10 year TIPS' real yields were about zero, and 30 year TIPS's real yield was about .5%.

On 3/4, 5 year TIPS' yield dropped to -.56%. On 3/18, it spiked to +.63%. Today, it's at -.03%. 10 year TIPS' yields have been very similar over the same time frame.

On 3/4, 30 year TIPS' yield dropped to -.22%. On 3/18, it spiked to +.78%. Today, it's at -.07%.

Any clue on what's going on here? Has the market's expectation of forward inflation been that volatile? Is the relatively illiquidity of TIPS at work? Both? Something else?
“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 are going crazy!

Post by Doc » Thu Mar 26, 2020 1:07 pm

willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
At the start of the year, 5 and 10 year TIPS' real yields were about zero, and 30 year TIPS's real yield was about .5%.

On 3/4, 5 year TIPS' yield dropped to -.56%. On 3/18, it spiked to +.63%. Today, it's at -.03%. 10 year TIPS' yields have been very similar over the same time frame.

On 3/4, 30 year TIPS' yield dropped to -.22%. On 3/18, it spiked to +.78%. Today, it's at -.07%.

Any clue on what's going on here? Has the market's expectation of forward inflation been that volatile? Is the relatively illiquidity of TIPS at work? Both? Something else?
Go back to '08 and see how TIPS did then. Ugly.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:11 pm

Doc wrote:
Thu Mar 26, 2020 1:07 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
At the start of the year, 5 and 10 year TIPS' real yields were about zero, and 30 year TIPS's real yield was about .5%.

On 3/4, 5 year TIPS' yield dropped to -.56%. On 3/18, it spiked to +.63%. Today, it's at -.03%. 10 year TIPS' yields have been very similar over the same time frame.

On 3/4, 30 year TIPS' yield dropped to -.22%. On 3/18, it spiked to +.78%. Today, it's at -.07%.

Any clue on what's going on here? Has the market's expectation of forward inflation been that volatile? Is the relatively illiquidity of TIPS at work? Both? Something else?
Go back to '08 and see how TIPS did then. Ugly.
If nothing else, TIPS have shown themselves to be very volatile by bond standards, especially during stock downturns. For that reason and others, I would much prefer to own individual TIPS rather than a TIPS fund.
“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 are going crazy!

Post by Doc » Thu Mar 26, 2020 1:12 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:11 pm
If nothing else, TIPS have shown themselves to be very volatile by bond standards, especially during stock downturns. For that reason and others, I would much prefer to own individual TIPS rather than a TIPS fund.
I had a ten year TPS ladder in '08. It didn't help.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:28 pm

Doc wrote:
Thu Mar 26, 2020 1:12 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:11 pm
If nothing else, TIPS have shown themselves to be very volatile by bond standards, especially during stock downturns. For that reason and others, I would much prefer to own individual TIPS rather than a TIPS fund.
I had a ten year TPS ladder in '08. It didn't help.
You got the real returns you signed up for, right? I would only ladder TIPS if I was planning on holding them to maturity.
“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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gmaynardkrebs
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Re: TIPS are going crazy!

Post by gmaynardkrebs » Thu Mar 26, 2020 1:35 pm

Doc wrote:
Thu Mar 26, 2020 1:07 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
At the start of the year, 5 and 10 year TIPS' real yields were about zero, and 30 year TIPS's real yield was about .5%.

On 3/4, 5 year TIPS' yield dropped to -.56%. On 3/18, it spiked to +.63%. Today, it's at -.03%. 10 year TIPS' yields have been very similar over the same time frame.

On 3/4, 30 year TIPS' yield dropped to -.22%. On 3/18, it spiked to +.78%. Today, it's at -.07%.

Any clue on what's going on here? Has the market's expectation of forward inflation been that volatile? Is the relatively illiquidity of TIPS at work? Both? Something else?
Go back to '08 and see how TIPS did then. Ugly.
The only ugliness is that I didn't put everything I could into them when real rates were 3%+.

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305pelusa
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Re: TIPS are going crazy!

Post by 305pelusa » Thu Mar 26, 2020 1:36 pm

willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.

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willthrill81
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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:38 pm

305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I'm not so sure.
“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

MarkBarb
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Re: TIPS are going crazy!

Post by MarkBarb » Thu Mar 26, 2020 1:39 pm

305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I thought that TIPS prices were all about the market's expectation of forward inflation. In fact, I often see people using the TIPS spread as an estimate for how the market sees future inflation rates.

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305pelusa
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Re: TIPS are going crazy!

Post by 305pelusa » Thu Mar 26, 2020 1:45 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:38 pm
305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I'm not so sure.
Why would it have an effect? What’s the reason you’re unsure?
MarkBarb wrote:
Thu Mar 26, 2020 1:39 pm
305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I thought that TIPS prices were all about the market's expectation of forward inflation. In fact, I often see people using the TIPS spread as an estimate for how the market sees future inflation rates.
The TIP yield/rate is a real yield (aka after inflation). It is precisely because TIPs yields are unaffected by inflation (while nominal yields are) that the difference between them (spread) is an estimate of future inflation.

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willthrill81
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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:47 pm

305pelusa wrote:
Thu Mar 26, 2020 1:45 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:38 pm
305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I'm not so sure.
Why would it have an effect? What’s the reason you’re unsure?
I would assume that if the market expected forward inflation to increase that TIPS would gain popularity and real yields would decline.
“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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Doc
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Re: TIPS are going crazy!

Post by Doc » Thu Mar 26, 2020 1:51 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:28 pm
Doc wrote:
Thu Mar 26, 2020 1:12 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:11 pm
If nothing else, TIPS have shown themselves to be very volatile by bond standards, especially during stock downturns. For that reason and others, I would much prefer to own individual TIPS rather than a TIPS fund.
I had a ten year TPS ladder in '08. It didn't help.
You got the real returns you signed up for, right? I would only ladder TIPS if I was planning on holding them to maturity.
No. The mantra going at the time was "TIPS are just like nominals except for the inflation protection." In '08 nominals rose in price and TIPS price tanked. All the TIPS were sold to rebalance so I did not get the return I signed up for.

And the same thing is happening now.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Angst
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Re: TIPS are going crazy!

Post by Angst » Thu Mar 26, 2020 1:52 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:47 pm
305pelusa wrote:
Thu Mar 26, 2020 1:45 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:38 pm
305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I'm not so sure.
Why would it have an effect? What’s the reason you’re unsure?
I would assume that if the market expected forward inflation to increase that TIPS would gain popularity and real yields would decline.
I would expect the spread between real and nominal yields to widen.

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willthrill81
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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:53 pm

Angst wrote:
Thu Mar 26, 2020 1:52 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:47 pm
305pelusa wrote:
Thu Mar 26, 2020 1:45 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:38 pm
305pelusa wrote:
Thu Mar 26, 2020 1:36 pm


I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I'm not so sure.
Why would it have an effect? What’s the reason you’re unsure?
I would assume that if the market expected forward inflation to increase that TIPS would gain popularity and real yields would decline.
I would expect the spread between real and nominal yields to widen.
As would I.
“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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willthrill81
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Re: TIPS are going crazy!

Post by willthrill81 » Thu Mar 26, 2020 1:54 pm

Doc wrote:
Thu Mar 26, 2020 1:51 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:28 pm
Doc wrote:
Thu Mar 26, 2020 1:12 pm
willthrill81 wrote:
Thu Mar 26, 2020 1:11 pm
If nothing else, TIPS have shown themselves to be very volatile by bond standards, especially during stock downturns. For that reason and others, I would much prefer to own individual TIPS rather than a TIPS fund.
I had a ten year TPS ladder in '08. It didn't help.
You got the real returns you signed up for, right? I would only ladder TIPS if I was planning on holding them to maturity.
No. The mantra going at the time was "TIPS are just like nominals except for the inflation protection." In '08 nominals rose in price and TIPS price tanked. All the TIPS were sold to rebalance so I did not get the return I signed up for.

And the same thing is happening now.

http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D
I would think that the reason you took losses was because realized inflation was lower than the market's predicted inflation rate. If realized inflation is below the break-even inflation rate, you come out ahead with Treasuries.
“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 are going crazy!

Post by watchnerd » Thu Mar 26, 2020 1:55 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:28 pm


You got the real returns you signed up for, right? I would only ladder TIPS if I was planning on holding them to maturity.
Yeah, I don't get the concern about mark-to-market pricing concerns about individual bonds held to maturity for most people.

My short TIPS are a mix of individual and fund (VTAPX). My fund is for liquidity, if needed, but the individual TIPS aren't.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: TIPS are going crazy!

Post by gmaynardkrebs » Thu Mar 26, 2020 1:57 pm

305pelusa wrote:
Thu Mar 26, 2020 1:36 pm
willthrill81 wrote:
Thu Mar 26, 2020 12:01 pm
Has the market's expectation of forward inflation been that volatile?
I would think the market’s expectation of forward inflation would have no effect on TIPs prices.
I think think the market’s current expectation of low forward inflation is quite important. When inflation is zero, real rates can't go lower than 0%, which is about where we are now. But, suppose we had 5% inflation now, at ZIRP. The Fed could give get negative real rates of -5% at ZIRP. That would also significantly boost TIPS prices.

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Doc
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Re: TIPS go Crazy!

Post by Doc » Thu Mar 26, 2020 2:03 pm

willthrill81 wrote:
Thu Mar 26, 2020 1:54 pm
I would think that the reason you took losses was because realized inflation was lower than the market's predicted inflation rate. If realized inflation is below the break-even inflation rate, you come out ahead with Treasuries.
I took losses because I had to sell Treasuries to rebalnce. And TIPS prices tanked while nominal prices soared. And that is exactly what is happening now. And the chart is for funds not ladders.

In the last few weeks I have rebalnce twice and used nominal Treasuries as the source of the money. (In this case notes but I also had funds if I wanted to chose that path.)

I think the problem in times like this is not inflation expectations but liquidity or lack thereof with TIPS. But the reason is not important . The important point is the difference in performance in times of equity market stress of TIPs and nominal for whatever reason.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: TIPS go Crazy!

Post by Wannaretireearly » Thu Mar 26, 2020 2:09 pm

tag. i have so much to learn about TIPS from you experts...

A real newbie question - If i want to buy TIPS (say in my taxable Vanguard account), what MF should i buy? why? what considerations?

Pls dont beat me up too bad :wink: - my experience with Bonds has been a. via TRD funds in my 401k and b. via CA Muni funds in taxable.
So TIPS are a black box. Appreciate any pointers in the right direction!
Buy Low, Sell High

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Doc
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Re: TIPS go Crazy!

Post by Doc » Thu Mar 26, 2020 2:11 pm

watchnerd wrote:
Thu Mar 26, 2020 1:55 pm
Yeah, I don't get the concern about mark-to-market pricing concerns about individual bonds held to maturity for most people.
The only Treasuries I hold to maturity are T-Bills and a lot of the time I sell them early despite the added bookkeeping.

Most Treasury funds do not hold their assets to maturity.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Doc
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Re: TIPS go Crazy!

Post by Doc » Thu Mar 26, 2020 2:14 pm

Wannaretireearly wrote:
Thu Mar 26, 2020 2:09 pm
tag. i have so much to learn about TIPS from you experts...

A real newbie question - If i want to buy TIPS (say in my taxable Vanguard account), what MF should i buy? why? what considerations?

Pls dont beat me up too bad :wink: - my experience with Bonds has been a. via TRD funds in my 401k and b. via CA Muni funds in taxable.
So TIPS are a black box. Appreciate any pointers in the right direction!
If you wanna retire early I would suggest that you don't invest in TIPS at all now. If you are still working your pay is keeping up with inflation anyway.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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