I wouldn't say "several" months. The lag is as short as it can be given the mechanism for indexing TIPS. For example the September CPI, scheduled to be released next week, will be used to index TIPS principal as of December 1st -- a lag of three months. However, there really is a big lag for I Bonds. For example, the same September CPI will determine the value on October 1st 2023 of an I Bond purchased this month -- a lag of thirteen months.
(Remember, the monthly CPIs aren't known until they are released the following month.) The lag could be reduced one month if the same factor was used to index TIPS principal for an entire month. The September CPI could then be used to calculate one index ratio for every day November 1st through 30th -- a lag of just two months. But then there would often be a big change in the index ratio between the last day of one month and the first day of the next month. The bond market would have to compensate for this with an offsetting change in the price and yield to maturity.marcopolo, in same post, wrote:... I would think ... the calculations could have used the previous month's CPI as the reference
To avoid this, TIPS index ratios are gradually adjusted every day during the month. The cost of this however, is that the September CPI can't be used for all of November. It can only be used for December 1st. The index ratios November 2nd - 30th are then interpolated between the November 1st and December 1st values. (See first two paragraphs of the left sidebar on this help page for an explanation of how the monthly CPI, Reference CPI, and Index Ratios are used to adjust TIPS for inflation.)
It's not enough to be indexed on interest payment or redemption dates. TIPS principal also needs to be indexed every business day to facilitate trading on the secondary market.jeffyscott wrote: ↑Tue Oct 04, 2022 5:19 pmSince they mature on the 15th, I don't know if the lag could be any less. The next maturity date is January 15. We'll get the Jan. 1 reference CPI in mid November and Feb 1 in mid December and only then will the Jan. 15 value be known.
Because of a government shutdown, the September 2013 CPI wasn't released until October 30th, just under the wire to calculate index ratios beginning 11/2/2013.jeffyscott, in same post, wrote:I don't know how the CPI release dates are set, but some are as late as the 13th.
In case anyone is interested, here is how Kevin's total cost can be calculated.
Code: Select all
Row Col A Col B
2 Face value purchased 30,000
3 Matures 4/15/2023
4 Coupon 0.625%
5 Settlement 10/06/2022 [1]
6 Price (unadjusted) 99.046000
7 Index ratio 10/06/2022 1.19271 [2]
Code: Select all
8 Interest period start 4/15/2022 =COUPPCD(B5,B3,2,1) [3]
9 Interest period end 10/15/2022 =COUPNCD(B5,B3,2,1) [3]
10 Days in period 183 =B9-B8 [4]
11 Days before settlement 174 =B5-B8 [4]
12 Principal purchased 35,781.30 =B2*B7
13 Principal cost 35,439.95 =B12*(B6/100)
14 Accrued interest 106.32 =B12*(B4/2)*(B11/B10)
15 Total cost 35,546.26 =B13+B14
- Treasury securities bought on the secondary market settle the next business day.
- TIPS index ratios for October 1-15 are on this webpage.
- The start and end of the interest period surrounding the settlement date can be determined with the Excel COUPPCD and COUPNCD functions. (In Google Sheets these functions may not work for maturities on the last day of a month. But TIPS always mature on the 15th.)
- Excel stores dates as the number of days since a base date (12/31/1899 in Windows). So the difference between two dates can be determined just by subtracting.
Nice post!
The average maturity of the thirteen TIPS in the 15+ year index followed by LTPZ is about that of the issue maturing 2/15/2045. This is because no TIPS currently mature 2033 - 2039 and the earliest issue in the index is the Feb 2040. According to the table in this post the weighted average life as of 9/30/2022 of the 15+ index was 22.41 years.McQ, in same post, wrote:... Too bad I’m condemned to buy LTPZ for the moment, average maturity about 2042.
2/26/2045 = DATE(2022, 9, 30) + 22.41 * 365.25