TIPS at maturity date - original auction vs reopened securities

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Hebell
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TIPS at maturity date - original auction vs reopened securities

Post by Hebell »

Hi,

I am building out a bond ladder over the next four years. I have a question about how ETRADE and FIDELITY, for example, present results when TIPS mature.

So far, I have been buying new (not reopened) TIPS at Etrade and Fidelity.

So, if I hold, lets say, 15 TIPS from the original auction, and 20 TIPS from later re-opening, how does it present at the date of maturity when I receive the cash proceeds?

Do I see two transactions - one for the maturation of the first purchase, and one for the maturation of the second purchase?

Or, do I see a single cash deposit into my account commensurate with the growth of those 35 bonds (same CUSIP)?

I have the full understanding of the TIPS, YTM and all that - just unclear on how brokerages IMPLEMENT the maturation.

Thanks - Cheryl
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#Cruncher
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Re: TIPS at maturity date - original auction vs reopened securities

Post by #Cruncher »

Hebell wrote: Wed Nov 11, 2020 3:30 pmSo, if I hold, lets say, 15 TIPS from the original auction, and 20 TIPS from later re-opening, how does it present at the date of maturity when I receive the cash proceeds?
Do I see two transactions - one for the maturation of the first purchase, and one for the maturation of the second purchase?
Or, do I see a single cash deposit into my account commensurate with the growth of those 35 bonds (same CUSIP)?
You'd probably only see a single transaction for the principal (plus another transaction for the final interest payment). I have not had your exact case, Cheryl, but I do have two lots of the same TIPS held at Broker A in a taxable account. One was purchased at a re-opening auction. The other was purchased on the secondary market at Broker B and later transferred in kind to Broker A.

Just like two lots of a stock, they are combined into one entry on my monthly statement. And every six months the total interest is reported as a single amount. I can see no reason why the principal at maturity would not also be reported as a single amount. The 1099-B for the year of maturity would probably break the lots out separately since they were purchased on two different dates with different cost bases -- again just like two lots of a stock sold at the same time.

But I'm curious. Why do you care? Why would it matter to you whether the two principal amounts at maturity are reported separately or combined?
Topic Author
Hebell
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Re: TIPS at maturity date - original auction vs reopened securities

Post by Hebell »

#cruncher - thank you for your reply. I am newer here and did not get notified that a response had posted. (I see how to do it now)

My angst on the matter is simply because I am the one handling the family finances (and always have, for 35 years). We just exited our accumulation phase last December. We have nearly 60x our living expenses, and that's not including my pension as an engineer, or the social security of my spouse (a pilot due to retire in another few years). Given our good position, I am in no mood for sequence of returns risk on stocks just as with start our retirement. (Even though our portfolio was built on the back of equities - no rich parents, no VC deals, and only modest rental income properties). So, my accounting question is simply a case of book-keeping nerves!!

Shifting on a dime from accumulation to bond laddering takes a strong stomach. I have historically used bond funds as the fixed income part of my portfolio, but I see no choice but to hold individual bonds to maturity in an environment where inflation must - eventually - go back up. I have devoured the Richelson's book on bonds, and Zvi Bodie's book, and absorbed them fully. Doesn't make the execution any easier.

Having looked at the YTM values for TIPS over time, you can see a lot of variation in any 3-4 year period. So, we elected to ladder in with 5- and 10-year TIPS, OVER FOUR YEARS, until 85% of all funds are deployed (the rest we'll hold for stocks after a deep pullback - we did not bite in March. My husband flew with a lot of pilots based in Singapore - the news remained too dire). Each year we buy $50K in I-bonds and $50K and EE bonds, the latter as a deflation hedge. (EE purchases will only run 8 more years given their 20 year holds). We buy as a wife, husband, 2 LLCs, and one irrevocable trust. The rest is a much larger slug of TIPS bought 8 times a year (divided between 5-year and 10-year TIPS). As the 5-year TIPS mature, we'll roll into 10-years.

Here's the answer on the reporting. E-trade and Fidelity both handle the matter much like stocks
  • You will see a SINGLE line item, with an arrow to click for expansion. Much as you see when you buy a volume of stocks on a limit order, and multiple executions occur.
  • Click the arrow. Multiple sublines are shown after the expansion, you will see the quantity, cost basis, percent gain/loss based on CURRENT market value for each individual purchase. So, I have two sublines. One for the original auction, and one for the re-opening.
This implies that when they mature I will almost certainly see a single deposit.
:?
I will tell you, that until I see a TIPS actually mature, and redeposit back in my account, it is unnerving to dutifully put my life savings into it.
FactualFran
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Re: TIPS at maturity date - original auction vs reopened securities

Post by FactualFran »

Hebell wrote: Sat Nov 21, 2020 4:49 pm This implies that when they mature I will almost certainly see a single deposit.
With the most recent TIPS that I had mature at Fidelity, 6 years ago, the statement for the month had 2 entries under Investment Activity: "Redeemed" with the transaction amount equal to the principal at maturity and "Interest" with the transaction amount equal to the final interest payment.

The statement does not have the daily transactions of the core account. The statement has for the core account the total for the month in each category. The total for the "Securities Sold" category includes the transaction amount of the TIPS redemption. The total for the "Income" category includes the transaction amount of the TIPS interest payment.

Taking a second look at the account statement, it does have the total of the transactions of the core account for each day. In my case the total was negative for the day the TIPS matured. On that day I also I took money from the core account.

[edit: replaced part about account statement not having daily transactions of the core account.]
Topic Author
Hebell
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Re: TIPS at maturity date - original auction vs reopened securities

Post by Hebell »

FactualFran wrote: Sat Nov 21, 2020 8:12 pm
This implies that when they mature I will almost certainly see a single deposit.

With the most recent TIPS that I had mature at Fidelity, 6 years ago, the statement for the month had 2 entries under Investment Activity: "Redeemed" with the transaction amount equal to the principal at maturity and "Interest" with the transaction amount equal to the final interest payment.
Thank you for this reply.

So, I will likely have TWO transactions per SINGLE Cusip. Your explanation makes great sense, thank you, in showing the final coupon payment.
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