Now that long TIPS yields have again breached 2.50% I will…

[yankees60]

Looks like we tied for a 20 year high today? Who else is excited.

Is 3% real yield a possible dream?

I am wildly excited!

Especially since I came to this forum in July 2023 specifically to buy TIPS. Still have bought now and was thinking that it was costing me big-time to have missed the big-time buying opportunity from then into the fall of 2023.

The goal is to finally buy sometime next week!

[Hebell]

I actually moved a small amount out of my money market fund that we use for a regular expenses, just to go buy some tips in 2043. Just couldn't stand not purchasing!

[FoundingFather]

I am about where you are - 80/20, with the 80% equities being a total world stock fund and the 20% being individual TIPS with long maturities and the smallest coupons I can get. For example, the 2052 TIPS only has a coupon of 0.125%. I am open to others correcting me, but my understanding is that buying TIPS at a discount with a very low accrued principal results in the TIPS being even more profitable during deflation while it still retains its ability to be indifferent to inflation.

Founding Father

How do you rebalance or you just don't bother with rebalance with enough TIPS?

To me, the data on rebalancing is not super compelling, either to reduce risk or to improve returns, so I pursue what I think of as soft rebalancing (I am in accumulation). Whenever I put money into investments, I split my purchase 80/20. This keeps my allocation from drifting too significantly, allows me to never have to pay attention to the market, and prevents some of the issues I worry about with rebalancing.

Founding Father

[watchnerd]

Looks like we tied for a 20 year high today? Who else is excited.

Is 3% real yield a possible dream?

On which maturity?

10 YR still a hair below Oct 2023 highs

[yankees60]

While I wanted 3% real, I've been happy to get well over 2% real TIPS. Door is now closing.

I don't expect to see 2%+ again till sometime in the 2030s. We should be a similar thread at that time.

Been fun and thanks for all the knowledge shared.

"I don't expect to see 2%+ again till sometime in the 2030s."

We are evidently seeing it NOW!

[AQ]

I placed a limit order of 50 shares of LTPZ at $50.95 last night. According to CNBC and Yahoo, the low of LTPZ today was exactly $50.95, but my order was NOT executed (at Fidelity). Any insights about why this might be the case?

[watchnerd]

I placed a limit order of 50 shares of LTPZ at $50.95 last night. According to CNBC and Yahoo, the low of LTPZ today was exactly $50.95, but my order was NOT executed (at Fidelity). Any insights about why this might be the case?

Market low from CNBC might have been from another exchange.

Did it actually hit that at Fidelity?

[well9boy9]

I actually moved a small amount out of my money market fund that we use for a regular expenses, just to go buy some tips in 2043. Just couldn't stand not purchasing!

Taxable account? I bond fixed rate may become competitive again. I tried to limit TIPS in tax sheltered.

[AQ]

I placed a limit order of 50 shares of LTPZ at $50.95 last night. According to CNBC and Yahoo, the low of LTPZ today was exactly $50.95, but my order was NOT executed (at Fidelity). Any insights about why this might be the case?

Market low from CNBC might have been from another exchange.

Did it actually hit that at Fidelity?

I'm not sure how to check if the low price point hit at Fidelity or not. But I guess you implied that prices might be slightly different at different exchanges?

[watchnerd]

Market low from CNBC might have been from another exchange.

Did it actually hit that at Fidelity?

I'm not sure how to check if the low price point hit at Fidelity or not. But I guess you implied that prices might be slightly different at different exchanges?

Yes, for ETFs of moderate to low volume, especially

[Everlast311]

How should younger, or more accurately middle-age investors think about the current TIPS yields? They aren't currently part of my portfolio which at this point is still mostly taxable vs tax-advantaged. But if I'm not sure how far retirement is, should I be thinking about locking in attractive yields this early? My current allocation is 85/15, have been thinking about moving to 80/20.

Age: 40

As someone in my early 40's, I've tossed this thought around the old bean. I concluded that TIPS could potentially be useful to lay down some baseline income in the gap years between retirement and (hopefully delayed) SS, allowing for less of a draw on the rest of the portfolio and easing sequence of returns risk (this might simply be a psychological crutch). Since I currently hold a substantial quantity of TIPS analogues (i.e. my future paychecks), I don't feel inclined to start buying this early. Purchasing some new issue 10-years as we approach retirement is a possibility (or converting some portion of the portfolio and buying in the secondary market). Although that may be equivalent to building out a buffer of short-term bonds to achieve the same result (SOR mitigation). If someone is strongly inclined to build a deterministic income stream 20+ years out, they could go that route, but a lot can happen between now and then, and they might need to unwind the position. For current retirees, it may seem too good to pass up if it gives them peace of mind. Regarding the attractiveness of yields, I scratched the itch when I-bonds were yielding 9%+ a few years back, but have since re-deployed that capital. There is no right answer, just one more tool at our disposal to use as we see fit.

[IDpilot]

Yes, it would. If you buy the 2034 it will mature in 2034 and then the proceeds would be exposed to inflation risk for three years. If you buy the 2040 you would have to sell them three years before they mature and what you could sell them for would depend on interest rates in 2037.

Sorry I should have clarified that earlier. Assume, no inflation risk for those 3 years and no loss when selling 2040 earlier. I am trying to understand why cost of 2040 is 40% or so higher than the 2034 TIP. What do I get for paying that extra cost upfront in 2025?

I think I see what is confusing you. We need to back up a bit and talk about how TIPS work and some basic definitions associated with bonds in general and TIPS specifically.

All bonds have a face value which is also known as the bond's par amount. This is the stated value of the bond at its initial issue. TIPS, and most treasuries are issued in face value increments of $100. It never changes.

Once a bond is issued it has a price also known as the market price. This is the price of the bond per $100 of par amount. It may be greater or less than $100. A bonds price will vary over time primarily based on changes in interest rate. Bonds will have two prices, a bid price and an ask price. The bid price is what a buyer is willing to pay for a bond and an ask price is what a bond owner is willing to sell a bond for.

Here is a key point. When you buy or sell bonds your quantity of bonds bought or sold is incremented at face value. If you buy $100 of bond X which has an ask price of $50 per $100 of face value, you will get a bond with a face value of $100 and you will pay $50 for it. When that bond matures you will get $100. You don't get $200 of face value of bond X for $100.

Now we come to a TIPS specific term. Inflation-adjusted principal which is often shortened to adjusted principal. This is the value of the security derived by multiplying the par amount by the index ratio. As described earlier, the index ratio for a TIPS is the ratio of the CPI on the settlement date to the CPI on the issue date of the TIPS. (okay, not exactly but it ain't worth discussing the three-month lag rignt now)

Now here is a key point for TIPS. If inflation was to go to zero on the day you bought a TIPS and stayed there until your TIPS matured, you would be paid by the Treasury the inflation-adjusted principal amount and NOT the face value of the TIPS. (again, close enough for this discussion)

So, when you buy $100 of face value of a particular TIPS you will pay the asked price times the index ratio for every $100 in face value. You aren't going to get the extra adjusted principal for free!

Let's use these terms to explain your earlier quotes.

Your quote for the 2034 TIPS was for $10,000 of face value of that TIPS. The asked price was 95.554 per $100 of face value and the index ratio for January 13 is 1.02670. 10,000 * 95.554/100 * 1.02670 = $9,810.53. Add the accrued interest and you get your total cost of $9,899.39. You get $10,267 in adjusted principal for this price.

For the 2040 TIPS the asked price was 95.718 per $100 of face value and the index ration for January 13 is 1.46016. Doing the same math as above, 10,000 * 95.718/100 * 1.46016 = 13,976.36 and add in the accrued interest and you get $14,103.68. But here you get $14,601.60 in adjusted principal!

So, what is the difference? You are buying way more adjusted principal of the 2040 than you are of the 2034 because you are comparing buying of the same amount of face value.

If what you want to do is buy $10,000 worth of one of these TIPS in today's dollars you need to buy either $6,800 (10000/1.46016) in face value of the 2040 TIPS or $9,700 (10000/1.02670) in face value of the 2034 one. If you did this the 2040's would cost you $9503.92 of the 2034's would cost you $9516.21 (ignoring accrued interest in both cases).

[yankees60]

Not OP, but, first, relax… This thread has been a lot of fun and is littered with folks trying to optimize or time their LT TIPS purchases as rates rose last year to 20 year highs.

"as rates rose last year to 20 year highs."

This post was written over a year ago. From that point of view "last year" was sometime in 2023?

That would put the 20 year high somewhere in the 2003 to 2023 time range?

A few hours ago, today, someone else wrote that today we hit a 20 year high.

That would then be sometime in the 2005 to 2025 time range?

Since 2023 is in that time range doesn't logic then say that today's high is even higher than that previous high set in 2023?

[Hebell]

I actually moved a small amount out of my money market fund that we use for a regular expenses, just to go buy some tips in 2043. Just couldn't stand not purchasing!

Taxable account? I bond fixed rate may become competitive again. I tried to limit TIPS in tax sheltered.

OID doesn't bother me. I view it as paying as I go, instead of paying all at the end. I've got all I want in our tax deferred account.

[watchnerd]

Since 2023 is in that time range doesn't logic then say that today's high is even higher than that previous high set in 2023?

Instead of trying to reverse engineer from forum posts and logic, just look at the actual data.

10 YR TIPS hit 2.50% in October, 2023.

We haven't broken that yet.

See:

https://tradingeconomics.com/united-sta ... tips-yield

[Everlast311]

Since 2023 is in that time range doesn't logic then say that today's high is even higher than that previous high set in 2023?

Instead of trying to reverse engineer from forum posts and logic, just look at the actual data.

10 YR TIPS hit 2.50% in October, 2023.

We haven't broken that yet.

See:

https://tradingeconomics.com/united-sta ... tips-yield

Interesting to see how the term structure has evolved since then. On the date of the high print for the 10-year in Oct. 23, the 5-30 spread was 7 basis points (2.49-2.56, had been inverted just a week prior). Today, it stands at 52 basis points (2.08-2.60). Curiously, in that same period, the 5-year expected inflation breakeven has risen from 2.40 to 2.51, while the 30-year breakeven has declined from 2.53 to 2.36. Hence, the real curve has steepened more than the nominal curve.

[protagonist]

Looks like we tied for a 20 year high today? Who else is excited.

Probably anyone who is not also heavily invested in the stock market.

[samulta52]

Sorry I should have clarified that earlier. Assume, no inflation risk for those 3 years and no loss when selling 2040 earlier. I am trying to understand why cost of 2040 is 40% or so higher than the 2034 TIP. What do I get for paying that extra cost upfront in 2025?

I think I see what is confusing you. We need to back up a bit and talk about how TIPS work and some basic definitions associated with bonds in general and TIPS specifically.

All bonds have a face value which is also known as the bond's par amount. This is the stated value of the bond at its initial issue. TIPS, and most treasuries are issued in face value increments of $100. It never changes.

Once a bond is issued it has a price also known as the market price. This is the price of the bond per $100 of par amount. It may be greater or less than $100. A bonds price will vary over time primarily based on changes in interest rate. Bonds will have two prices, a bid price and an ask price. The bid price is what a buyer is willing to pay for a bond and an ask price is what a bond owner is willing to sell a bond for.

Here is a key point. When you buy or sell bonds your quantity of bonds bought or sold is incremented at face value. If you buy $100 of bond X which has an ask price of $50 per $100 of face value, you will get a bond with a face value of $100 and you will pay $50 for it. When that bond matures you will get $100. You don't get $200 of face value of bond X for $100.

Now we come to a TIPS specific term. Inflation-adjusted principal which is often shortened to adjusted principal. This is the value of the security derived by multiplying the par amount by the index ratio. As described earlier, the index ratio for a TIPS is the ratio of the CPI on the settlement date to the CPI on the issue date of the TIPS. (okay, not exactly but it ain't worth discussing the three-month lag rignt now)

Now here is a key point for TIPS. If inflation was to go to zero on the day you bought a TIPS and stayed there until your TIPS matured, you would be paid by the Treasury the inflation-adjusted principal amount and NOT the face value of the TIPS. (again, close enough for this discussion)

So, when you buy $100 of face value of a particular TIPS you will pay the asked price times the index ratio for every $100 in face value. You aren't going to get the extra adjusted principal for free!

Let's use these terms to explain your earlier quotes.

Your quote for the 2034 TIPS was for $10,000 of face value of that TIPS. The asked price was 95.554 per $100 of face value and the index ratio for January 13 is 1.02670. 10,000 * 95.554/100 * 1.02670 = $9,810.53. Add the accrued interest and you get your total cost of $9,899.39. You get $10,267 in adjusted principal for this price.

For the 2040 TIPS the asked price was 95.718 per $100 of face value and the index ration for January 13 is 1.46016. Doing the same math as above, 10,000 * 95.718/100 * 1.46016 = 13,976.36 and add in the accrued interest and you get $14,103.68. But here you get $14,601.60 in adjusted principal!

So, what is the difference? You are buying way more adjusted principal of the 2040 than you are of the 2034 because you are comparing buying of the same amount of face value.

If what you want to do is buy $10,000 worth of one of these TIPS in today's dollars you need to buy either $6,800 (10000/1.46016) in face value of the 2040 TIPS or $9,700 (10000/1.02670) in face value of the 2034 one. If you did this the 2040's would cost you $9503.92 of the 2034's would cost you $9516.21 (ignoring accrued interest in both cases).

Much appreciated. I read all these last yr but easily forgot all that math.

[bikechuck]

What is “fluid cash” and how does that compare to just plain “cash”?

Liquidity. As implied by the word.
-Protagonist. Director, Department of Redundancy Department.

AnyWOW, now I have a bunch of fluid liquid cash, yields are great, and I am in a quandary of what to do.
1..Do I pad my current ladder extending to age 88-90, or do I extend it further into the 2040s???
2. Do I invest now or market-time, gambling on inflation, looming unemployment and plummeting bond prices in a couple of weeks?
Arrrggghhh.... what to do....what to do....what to do....

In your situation I would pad existing rungs to have more liquidity in years where I have a higher probability of benefiting from the dollars invested. I have no plans to extend my ladder past age 90.

Adding that if you like today's yields I would invest the funds now rather than holding out for a potential higher rate in the future.

[FoundingFather]

Deleted (question moved to new thread).

Founding Father

[yankees60]

Today I sold out of all my TIPS. I had been thinking about this for a while. I don't think they are a good product *for me* since the way inflation is measured doesn't seem to have any correlation to my spending.

I have a TIPS from 5 years ago that is about to mature. The total principal appreciation has been < 20%. Compared to 5 years ago, my spend is up at least 50% if not more. And I have not upgraded my lifestyle in any way. (underline added)

You seem to be referring to the 0-1/2% 5-year TIPS maturing 4/15/2024. If you bought this TIPS at the initial auction 4/18/2019, you obtained a 0.515% real yield to maturity. With this morning's release of the February CPI report, we now know this TIPS' index ratio on its 4/15/2024 maturity date. As shown on this webpage, and cell D28 of the table below, we therefore know a purchase at the initial auction will have a 4.636% nominal return if held to maturity.

I find it ironic that you choose this particular purchase as an example of what you presumably consider to be disappointing performance. If instead you'd purchased the 2-1/4% 5-year nominal Treasury note maturing 4/30/24 at its 4/24/2019 auction you would get only a 2.315% nominal return if held to maturity. The TIPS' nominal return is about 2.3% points better.

Code: Select all

Row               Col A        Col B      Col C       Col D   Formula in Column B
  2          Face value       10,000
  3          Settlement    4/30/2019
  4            Maturity    4/15/2024
  5              Coupon       0.500%
  6               Price      99.9266
  7   Yield to maturity       0.515%                         =YIELD(B3,B4,B5,B6,100,2,1)
  8  Prev interest date    4/15/2019                         =COUPPCD(B3,B4,2,1)
  9  Next interest date   10/15/2019                         =COUPNCD(B3,B4,2,1)
 10      Days in period          183                         =B9-B8
 11  Days before settle           15                         =B3-B8

 12                Date       Real $  Idx Ratio   Indexed $

Code: Select all

 13           4/30/2019    -9,992.66    1.00211  -10,013.74  =-B2*(B6/100)
 14           4/30/2019        -2.05    1.00211       -2.05  =-B2*(B5/2)*(B11/B10)
 15          10/15/2019        25.00    1.01727       25.43  =B$2*(B$5/2)+IF(A15=B$4,B$2,0)
 16           4/15/2020        25.00    1.02416       25.60   | | |
 17          10/15/2020        25.00    1.02879       25.72   | | |
 18           4/15/2021        25.00    1.03982       26.00   | | |
 19          10/15/2021        25.00    1.08346       27.09   | | |
 20           4/15/2022        25.00    1.11950       27.99   | | |
 21          10/15/2022        25.00    1.17454       29.36   | | |
 22           4/15/2023        25.00    1.18929       29.73   | | |
 23          10/15/2023        25.00    1.21445       30.36   v v v
 24           4/15/2024    10,025.00    1.22640   12,294.66  =B$2*(B$5/2)+IF(A24=B$4,B$2,0)

Code: Select all

 25           Gain/Loss       255.29               2,526.14  =SUM(B13:B24)
 26    Nbr full periods            9                         =COUPNUM(B3,B4,2,1)-1
 27   Avg days / period      182.698                         =(B4-B3)/(B26+1-B11/B10)
 28              Return       0.515%                 4.636%  =2*((1+XIRR(B13:B24,$A13:$A24))^($B27/365)-1)[/url]

The table above uses the Excel YIELD, COUPPCD, COUPNCD, COUPNUM, and XIRR functions. The complicated formula in cell B28 (copied to cell D28) converts the annual compounded return from XIRR to the semi-annual compounded return conventionally used for Treasury securities.

Is "[/url]" at the end of the formula on row 28 ... part of the formula? Or some code used to display the information in the post?

[yankees60]

For now just individual t-bills in taxable and money market in tax advantage account. I'm planning to increase allocation to stock (currently at < 10%), but I'll do it slowly.

Yes 10% stocks is too low, most recommend a minimum of 25%.

There is oftentimes too high an emphasis on %'s without viewing them in conjunction with the absolute $$$ involved (and other circumstances).

One can make generalities with %'s but always best to view them along with the absolute $$$$.

[yankees60]

https://twitter.com/charliebilello/stat ... 1178348575
"A WSJ analysis found that a commonly purchased basket of supermarket goods increased in price by 36.5% over the past 4 years (+8.1% per year), much higher than US Government CPI figures which show food price inflation of 24.9% (+5.7%/year)."

This is why TIPS don't work. You are losing purchasing power pretty rapidly.

Could that not simply be a product of the composition of what each of them considered food?

[yankees60]

TIPS yielding 3%, on top of inflation at 3.6%? I would seriously consider reallocating TIAA dollars to LTPZ (it would be a cross account swap, details are boring).

Question for those reading the thread: are you full up, bought all the TIPS you (think) you need? What would it take for you to expand your allotment, as I am doing?

Caveat: I am only rearranging deck chairs on my fixed income platform. Do not read me otherwise.

In fixed income I have roughly 1/3 in a total bond fund (SWAGX), 1/3 in an intermediate TIPS fund (SCHP), and 1/3 in an international bond fund (BNDX). I also have a substantial amount in both TIAA Trad. at 5.25%, and cash in money markets. I continue to believe that having diversification on the fixed income side is preferable to going all in on TIPS, so I'm not jumping on the TIPs hysteria train that this forum reflects. I wonder why those who see the benefit of diversification in other parts of their portfolio are so willing to throw it out on the fixed income side in favor of TIPS, which regardless of how you analyze it have a relatively short investment history. Especially for those in or near retirement, where the absolute amounts are in most cases larger so that the actual allocations have meaningful dollars invested.

I also wonder how you have resisted the push from others on this forum to invest directly in TIPS as opposed to through a fund like LTPZ? Seems that the argument made for investing directly in bonds (whether TIPS or nominal) rather than through a fund has been a common topic of discussion, and that most on the TIPS train opt for direct investment through laddering. I find it close enough to just invest through funds, and think I will end up pretty much in the same place.

"so I'm not jumping on the TIPs hysteria train that this forum reflects."

!!!!!!!!!!!!!!!!

I'm hoping to soon also be on that "TIPs hysteria train" with TIPS composing no less than 70% of the individual bonds I own (the balance being Treasury nominals). NO bond funds for me!

I believe that a large part of the "TIPs hysteria train" is its uniqueness as an investment. Being guaranteed a certain amount at the time the bond matures relative to the CPI inflation that occurred during the time you held it as an investment.

[yankees60]

I think it is a matter of which has the potential for a more secure retirement plan. With the TIPS ladder, you can know what real income you can expect (before taxes). With a nominal bond fund, you might eek out a percent or so more return if inflation and interest rate trends are favorable.

TIPSwatch.com looks at how each TIPS did when it matures compared to the nominal Treasury you could have bought at about the same time. Here are the reports for the recently maturing 5-year and 10-year:

https://tipswatch.com/2024/03/27/a-5-ye ... nvestment/
https://tipswatch.com/2024/01/21/a-10-y ... estment-2/

Scroll down to the table of comparing returns.

Sometimes TIPS "win", sometimes nominals "win". The nominal win has not been more than 1%/year. As I see it, with nominals, you take on inflation risk for a pretty meager potential excess return.

The best wins for TIPS were better than the best wins for nominals, but that is just a reflection of our recent bout of higher than normal inflation or Global Financial Crisis rate anomalies (10-year maturing 2019 and 5-year maturing 2014). Maybe we are currently in a real rate anomaly.

Two big risks with a TIPS ladder that I’m not seeing being discussed are:

* life event causing you need to sell later rungs early
* no growth potential like found with equities. You’re pretty much building your own COLA pension for a fixed number of years.

"You’re pretty much building your own COLA pension for a fixed number of years."

That is NOT a risk. That is a PRIMARY goal of purchasing them!

[anoop]

https://twitter.com/charliebilello/stat ... 1178348575
"A WSJ analysis found that a commonly purchased basket of supermarket goods increased in price by 36.5% over the past 4 years (+8.1% per year), much higher than US Government CPI figures which show food price inflation of 24.9% (+5.7%/year)."

This is why TIPS don't work. You are losing purchasing power pretty rapidly.

Could that not simply be a product of the composition of what each of them considered food?

OK, I'll give you the benefit of doubt. Now explain this with health insurance.
https://x.com/charliebilello/status/1857446261684658521

For me, TIPS are poor investment. They give an illusion of preserving purchasing power, but it would require me to study the CPI and lower my lifestyle to match that.

[sycamore]

Could that not simply be a product of the composition of what each of them considered food?

OK, I'll give you the benefit of doubt. Now explain this with health insurance.
https://x.com/charliebilello/status/1857446261684658521

For me, TIPS are poor investment. They give an illusion of preserving purchasing power, but it would require me to study the CPI and lower my lifestyle to match that.

Is it fair to say you think nominal bonds don't do any better than TIPS at preserving purchase power?

[anoop]

OK, I'll give you the benefit of doubt. Now explain this with health insurance.
https://x.com/charliebilello/status/1857446261684658521

For me, TIPS are poor investment. They give an illusion of preserving purchasing power, but it would require me to study the CPI and lower my lifestyle to match that.

Is it fair to say you think nominal bonds don't do any better than TIPS at preserving purchase power?

They don't either. That's why I just use t-bills and risk investments. IMO, long duration bonds are the new toxic asset, what I would like to call rat poison. Pension funds agree which is why they are holding record amounts of equities.
https://x.com/elliottwaveintl/status/18 ... 5389797674

[Richard1580]

Could that not simply be a product of the composition of what each of them considered food?

OK, I'll give you the benefit of doubt. Now explain this with health insurance.
https://x.com/charliebilello/status/1857446261684658521

For me, TIPS are poor investment. They give an illusion of preserving purchasing power, but it would require me to study the CPI and lower my lifestyle to match that.

Inflation across sectors can be as varied as the equities heat map. Government CPI numbers are not going to correspond with personal inflation.

That said, the advantage of TIPS is that if you are buying at par (or below) and holding to maturity, you are guaranteed not to lose capital. If inflation increases dramatically, you should at least keep close to even.

Equities *generally* keep up with (or exceed) inflation, but there is no guarantee that you will not lose capital in a market downturn.

If you are looking for a place to safely park capital, TIPS are a good solution. Of course, the same can be said about money markets or short term nominal treasuries.

[Wwwdotcom]

I wonder if the people trying to to time the TIPs market have paused to speculate why TIP yields have been rising.

[yankees60]

I removed an off-topic post (economic policy). As a reminder, see: Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

• US or world economic, political, tax, health care and climate policies
• conspiracy theories of any type
• discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.

How many times have I seen the above and until now never read it all the way through?

The last sentence in it was NOT expected!

"Of course, you are welcome to talk about the stupid financial things you have done"

[yankees60]

[Enjoying the dialogue]

There is a tacit assumption in Craig’s reasoning that may not hold. Specifically, that we can expect a reasonably linear association between nominal yields and TIPS real yields. Under that expectation:

-If, as today, TIPS yields are near 2.5% when nominals are near 5%, then
-if nominals surge to 7%, then TIPS yields should rise to 3.5%, 4%, somewhat more;
-and if nominals surge further to 8%, 9%, 10%, then
-TIPS yields will move up still further to 4%, 5%, whatever.

And thus Craig’s challenge to my 2.5% trigger for a “load ‘em up” market timing rule for long TIPS: “Why not wait for an even more terrific entry point before buying more TIPS?”

Here is a thought experiment to expose the fragility of this assumption.

1. Why would long nominals climb from their present 5% yields to 8%, 10%?
-fear of rampant, galloping inflation going forward and beginning right now

2. Can the long nominal buyer know for certain what inflation will average out to be, over the 20 to 30 years until maturity?
-Of course not. If the market “demands” a 2% real yield as an equilibrium rate for being indifferent to nominal versus inflation-linked bonds, and if nominal buyers cannot know whether the looming inflation rate is going up as high as 5%, 7%, 10% or more, for some unknown period, then the nominal bond buyer will demand a yield premium over expected 20+ year inflation—a safety margin. The greater the volatility, as in the rapid rise in yields, the more ample the safety margin demanded.

3. The TIPS buyer won’t require that hedge. And the certainty that TIPS will match future inflation, whatever it is, becomes more valuable the more uncertain the future rate of inflation.

4. As a consequence, the demanded TIPS real yield may DROP.

5. If long nominals go to 7% in the next months, TIPS real yields might drop back to 2% from 2.5%.

6. And if nominals surge further, TIPS yields might drop to 1.75% or 1.5% or lower.

Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008.

Put another way, for some time now the inflation expectation built into nominal yields has hovered between 2.25% to 2.5%. Only when those bounds hold can we expect a linear association between nominal yields and TIPS yields. If that expectation were to go to 3.5% even as nominal bonds hover just over 5% at, say, 5.25%, then TIPS yields will drop below 2.0% rather than rise to 2.75%.

The 4%+ yields seen immediately after introduction in 1997 will never return. Shiller (2015) has a chart of UK as well as US inflation-linked bonds (p. 16 of the 3rd edition). UK TIPS hovered above 4% for a few years after their introduction in the 1980s and then never returned to that level, hovering about 2% when US TIPS were introduced at 4%.

That real yield level (4%) is an artifact of unfamiliarity, not a marker of the range to be expected after the product has become familiar.

If TIPS yields over 2.5%, or, OMG, 3%, come your way, grab them. That’s what my remaining dry powder is for.

"Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008"

Anyone believe counter to this?

[Wwwdotcom]

[Enjoying the dialogue]

There is a tacit assumption in Craig’s reasoning that may not hold. Specifically, that we can expect a reasonably linear association between nominal yields and TIPS real yields. Under that expectation:

-If, as today, TIPS yields are near 2.5% when nominals are near 5%, then
-if nominals surge to 7%, then TIPS yields should rise to 3.5%, 4%, somewhat more;
-and if nominals surge further to 8%, 9%, 10%, then
-TIPS yields will move up still further to 4%, 5%, whatever.

And thus Craig’s challenge to my 2.5% trigger for a “load ‘em up” market timing rule for long TIPS: “Why not wait for an even more terrific entry point before buying more TIPS?”

Here is a thought experiment to expose the fragility of this assumption.

1. Why would long nominals climb from their present 5% yields to 8%, 10%?
-fear of rampant, galloping inflation going forward and beginning right now

2. Can the long nominal buyer know for certain what inflation will average out to be, over the 20 to 30 years until maturity?
-Of course not. If the market “demands” a 2% real yield as an equilibrium rate for being indifferent to nominal versus inflation-linked bonds, and if nominal buyers cannot know whether the looming inflation rate is going up as high as 5%, 7%, 10% or more, for some unknown period, then the nominal bond buyer will demand a yield premium over expected 20+ year inflation—a safety margin. The greater the volatility, as in the rapid rise in yields, the more ample the safety margin demanded.

3. The TIPS buyer won’t require that hedge. And the certainty that TIPS will match future inflation, whatever it is, becomes more valuable the more uncertain the future rate of inflation.

4. As a consequence, the demanded TIPS real yield may DROP.

5. If long nominals go to 7% in the next months, TIPS real yields might drop back to 2% from 2.5%.

6. And if nominals surge further, TIPS yields might drop to 1.75% or 1.5% or lower.

Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008.

Put another way, for some time now the inflation expectation built into nominal yields has hovered between 2.25% to 2.5%. Only when those bounds hold can we expect a linear association between nominal yields and TIPS yields. If that expectation were to go to 3.5% even as nominal bonds hover just over 5% at, say, 5.25%, then TIPS yields will drop below 2.0% rather than rise to 2.75%.

The 4%+ yields seen immediately after introduction in 1997 will never return. Shiller (2015) has a chart of UK as well as US inflation-linked bonds (p. 16 of the 3rd edition). UK TIPS hovered above 4% for a few years after their introduction in the 1980s and then never returned to that level, hovering about 2% when US TIPS were introduced at 4%.

That real yield level (4%) is an artifact of unfamiliarity, not a marker of the range to be expected after the product has become familiar.

If TIPS yields over 2.5%, or, OMG, 3%, come your way, grab them. That’s what my remaining dry powder is for.

"Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008"

Anyone believe counter to this?

Yields can increase substantially if global investors divest their investments from the US. This would happen almost mechanically if US stopped importing goods.

[Richard1580]

[Enjoying the dialogue]

There is a tacit assumption in Craig’s reasoning that may not hold. Specifically, that we can expect a reasonably linear association between nominal yields and TIPS real yields. Under that expectation:

-If, as today, TIPS yields are near 2.5% when nominals are near 5%, then
-if nominals surge to 7%, then TIPS yields should rise to 3.5%, 4%, somewhat more;
-and if nominals surge further to 8%, 9%, 10%, then
-TIPS yields will move up still further to 4%, 5%, whatever.

And thus Craig’s challenge to my 2.5% trigger for a “load ‘em up” market timing rule for long TIPS: “Why not wait for an even more terrific entry point before buying more TIPS?”

Here is a thought experiment to expose the fragility of this assumption.

1. Why would long nominals climb from their present 5% yields to 8%, 10%?
-fear of rampant, galloping inflation going forward and beginning right now

2. Can the long nominal buyer know for certain what inflation will average out to be, over the 20 to 30 years until maturity?
-Of course not. If the market “demands” a 2% real yield as an equilibrium rate for being indifferent to nominal versus inflation-linked bonds, and if nominal buyers cannot know whether the looming inflation rate is going up as high as 5%, 7%, 10% or more, for some unknown period, then the nominal bond buyer will demand a yield premium over expected 20+ year inflation—a safety margin. The greater the volatility, as in the rapid rise in yields, the more ample the safety margin demanded.

3. The TIPS buyer won’t require that hedge. And the certainty that TIPS will match future inflation, whatever it is, becomes more valuable the more uncertain the future rate of inflation.

4. As a consequence, the demanded TIPS real yield may DROP.

5. If long nominals go to 7% in the next months, TIPS real yields might drop back to 2% from 2.5%.

6. And if nominals surge further, TIPS yields might drop to 1.75% or 1.5% or lower.

Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008.

Put another way, for some time now the inflation expectation built into nominal yields has hovered between 2.25% to 2.5%. Only when those bounds hold can we expect a linear association between nominal yields and TIPS yields. If that expectation were to go to 3.5% even as nominal bonds hover just over 5% at, say, 5.25%, then TIPS yields will drop below 2.0% rather than rise to 2.75%.

The 4%+ yields seen immediately after introduction in 1997 will never return. Shiller (2015) has a chart of UK as well as US inflation-linked bonds (p. 16 of the 3rd edition). UK TIPS hovered above 4% for a few years after their introduction in the 1980s and then never returned to that level, hovering about 2% when US TIPS were introduced at 4%.

That real yield level (4%) is an artifact of unfamiliarity, not a marker of the range to be expected after the product has become familiar.

If TIPS yields over 2.5%, or, OMG, 3%, come your way, grab them. That’s what my remaining dry powder is for.

"Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008"

Anyone believe counter to this?

Good point - I don't know.

Government bonds returning 2-2.5% real seems like a pretty good deal. But will that return remain constant if inflation increases dramatically? If inflation hits 20%, will the market still be content with a real yield of 2-2.5%, or will it expect a premium?

Have inflation protected securities ever been issued by a country which then underwent high inflation? If so, was the real yield constant, or did it go up?

Just curious.

[Richard1580]

Help me out here.

Looking at the YTM numbers for 20-30 year TIPS at ~2.5% is pretty enticing. But that assumes you are holding to maturity. If you need to draw out cash prior to maturity, and interest rates/inflation have increased significantly, you are going to to take a significant hit in your actual return.

For the people purchasing 20-30 year TIPS - are you planning to hold to maturity?

[Lyrrad]

Help me out here.

Looking at the YTM numbers for 20-30 year TIPS at ~2.5% is pretty enticing. But that assumes you are holding to maturity. If you need to draw out cash prior to maturity, and interest rates/inflation have increased significantly, you are going to to take a significant hit in your actual return.

For the people purchasing 20-30 year TIPS - are you planning to hold to maturity?

I plan to hold to maturity (and keep buying) unless real yields drop significantly, or if it drops below that of I Bonds.

If that were to occur, I’d expect to be able to sell at a profit and get a higher real returns with I Bonds, ignoring tax considerations.

I’ll lower my average duration over time.

[IDpilot]

https://twitter.com/charliebilello/stat ... 1178348575
"A WSJ analysis found that a commonly purchased basket of supermarket goods increased in price by 36.5% over the past 4 years (+8.1% per year), much higher than US Government CPI figures which show food price inflation of 24.9% (+5.7%/year)."

This is why TIPS don't work. You are losing purchasing power pretty rapidly.

Could that not simply be a product of the composition of what each of them considered food?

The WSJ analysis was based on about 32 items (CPI is close to 100) and was NOT weighted for consumer consumption and didn't control for changes in package sizes ... in other words, pretty meaningless. Unless, of course, it confirms a previously held opinion.

[anoop]

Could that not simply be a product of the composition of what each of them considered food?

The WSJ analysis was based on about 32 items (CPI is close to 100) and was NOT weighted for consumer consumption and didn't control for changes in package sizes ... in other words, pretty meaningless. Unless, of course, it confirms a previously held opinion.

Are you a bot?

What about the issue with health insurance?
https://x.com/charliebilello/status/1857446261684658521

[watchnerd]

The WSJ analysis was based on about 32 items (CPI is close to 100) and was NOT weighted for consumer consumption and didn't control for changes in package sizes ... in other words, pretty meaningless. Unless, of course, it confirms a previously held opinion.

Are you a bot?

What about the issue with health insurance?
https://x.com/charliebilello/status/1857446261684658521

If you don't like them, you don't need to buy TIPS.

[CraigTester]

[Enjoying the dialogue]

There is a tacit assumption in Craig’s reasoning that may not hold. Specifically, that we can expect a reasonably linear association between nominal yields and TIPS real yields. Under that expectation:

-If, as today, TIPS yields are near 2.5% when nominals are near 5%, then
-if nominals surge to 7%, then TIPS yields should rise to 3.5%, 4%, somewhat more;
-and if nominals surge further to 8%, 9%, 10%, then
-TIPS yields will move up still further to 4%, 5%, whatever.

And thus Craig’s challenge to my 2.5% trigger for a “load ‘em up” market timing rule for long TIPS: “Why not wait for an even more terrific entry point before buying more TIPS?”

Here is a thought experiment to expose the fragility of this assumption.

1. Why would long nominals climb from their present 5% yields to 8%, 10%?
-fear of rampant, galloping inflation going forward and beginning right now

2. Can the long nominal buyer know for certain what inflation will average out to be, over the 20 to 30 years until maturity?
-Of course not. If the market “demands” a 2% real yield as an equilibrium rate for being indifferent to nominal versus inflation-linked bonds, and if nominal buyers cannot know whether the looming inflation rate is going up as high as 5%, 7%, 10% or more, for some unknown period, then the nominal bond buyer will demand a yield premium over expected 20+ year inflation—a safety margin. The greater the volatility, as in the rapid rise in yields, the more ample the safety margin demanded.

3. The TIPS buyer won’t require that hedge. And the certainty that TIPS will match future inflation, whatever it is, becomes more valuable the more uncertain the future rate of inflation.

4. As a consequence, the demanded TIPS real yield may DROP.

5. If long nominals go to 7% in the next months, TIPS real yields might drop back to 2% from 2.5%.

6. And if nominals surge further, TIPS yields might drop to 1.75% or 1.5% or lower.

Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008.

Put another way, for some time now the inflation expectation built into nominal yields has hovered between 2.25% to 2.5%. Only when those bounds hold can we expect a linear association between nominal yields and TIPS yields. If that expectation were to go to 3.5% even as nominal bonds hover just over 5% at, say, 5.25%, then TIPS yields will drop below 2.0% rather than rise to 2.75%.

The 4%+ yields seen immediately after introduction in 1997 will never return. Shiller (2015) has a chart of UK as well as US inflation-linked bonds (p. 16 of the 3rd edition). UK TIPS hovered above 4% for a few years after their introduction in the 1980s and then never returned to that level, hovering about 2% when US TIPS were introduced at 4%.

That real yield level (4%) is an artifact of unfamiliarity, not a marker of the range to be expected after the product has become familiar.

If TIPS yields over 2.5%, or, OMG, 3%, come your way, grab them. That’s what my remaining dry powder is for.

"Which reinforces my market timing assumptions: real yields on TIPS much above 3.0% are highly unlikely except in brief liquidity panics, as we saw in 2008"

Anyone believe counter to this?

With all due respect to McQ's above thought experiment (which I enjoyed), we are in unchartered waters with US Debt/GDP having grown to 123% from a "baseline" of say, 35% prior to 2008 (QE, et al)

If investor's decide the debt/gdp is just too high, and further debt-ratings downgrades occur, then anything can happen with yields (Real and Nominal).

So what to do?

IMHO, there are two decisions to be made.

1) If you want to build a 20 year TIPS ladder to meet your inflation-indexed future basic needs, and today's rates are good enough to enable you to do that, then go for it.... I see this application as a replacement for the old inflation-indexed annuities (which I believe are no longer being offered)

2) But to the "market timing" question of whether its time to back up the truck for "speculative" purposes, we know from McQ's earlier posted real bond returns chart, that "realized" yields can certainly go (way) higher than 2.5% real....

And don't dismiss that "expected" long-term stock returns are certainly (way) higher than 2.5% real.....

So proceed with caution... FWIW, I'm not participating in this latter game yet....but I do have a 20 year TIPS ladder for "annuity" purposes

[anoop]

Are you a bot?

What about the issue with health insurance?
https://x.com/charliebilello/status/1857446261684658521

If you don't like them, you don't need to buy TIPS.

Yes, I won't touch them anymore. I was buying one every 5 years but after the realization that it doesn't really keep up with inflation as I experience it, I dumped all of them. Kind of similar to my experience with I-Bonds when someone here, several years ago, explained to me that I-Bonds won't keep up with inflation after you account for taxes. That's when I dumped all my I-Bonds. But I continued to think TIPS would be OK in my Roth. Until I had this realization earlier this year with a TIPS that I had bought in 2019 that matured. It was way, way off. It appreciated roughly 20% while my personal expenses were up more 50% during that time. The only hope is stocks.

[IDpilot]

The WSJ analysis was based on about 32 items (CPI is close to 100) and was NOT weighted for consumer consumption and didn't control for changes in package sizes ... in other words, pretty meaningless. Unless, of course, it confirms a previously held opinion.

Are you a bot?

What about the issue with health insurance?
https://x.com/charliebilello/status/1857446261684658521

Today we ask if one is a bot, yesterday we asked about broken records! I thought about asking you the same question! On health insurance .... I don't care enough to research another piece of, in all probability, CPI porn.

[protagonist]

Liquidity. As implied by the word.
-Protagonist. Director, Department of Redundancy Department.

AnyWOW, now I have a bunch of fluid liquid cash, yields are great, and I am in a quandary of what to do.
1..Do I pad my current ladder extending to age 88-90, or do I extend it further into the 2040s???
2. Do I invest now or market-time, gambling on inflation, looming unemployment and plummeting bond prices in a couple of weeks?
Arrrggghhh.... what to do....what to do....what to do....

In your situation I would pad existing rungs to have more liquidity in years where I have a higher probability of benefiting from the dollars invested. I have no plans to extend my ladder past age 90.

Adding that if you like today's yields I would invest the funds now rather than holding out for a potential higher rate in the future.

Great minds think alike (ahem....)
This is the conclusion I am coming to as well.
Thanks for the affirmation.

[yankees60]

Help me out here.

Looking at the YTM numbers for 20-30 year TIPS at ~2.5% is pretty enticing. But that assumes you are holding to maturity. If you need to draw out cash prior to maturity, and interest rates/inflation have increased significantly, you are going to to take a significant hit in your actual return.

For the people purchasing 20-30 year TIPS - are you planning to hold to maturity?

That would be / should be the intent. Otherwise, as you point out, you are taking on too much risk.

[yankees60]

Not to sound like a broken record, but the main downside I see is that the TIPS held in taxable no longer have a real after-tax rate of return that is independent of actual, realized inflation rates. To me, a huge benefit of TIPS is that their real return does not depend on what inflation does. But if you have TIPS held in taxable, then the real return on your TIPS will end up lower if inflation is higher.

You can see this by doing some examples in a spreadsheet, or find discussion of it searching TIPS and taxflation on the forum. For example, user Leesbro63 frequently comments on this issue.

This issue is separate from whether deferring taxes is good or not in one's personal circumstances (which I agree it usually is but also may not be depending on a variety of factors like the ones that you list).

So I don't think it is quite as clear-cut as you suggest. Assume $10K in TIPS and 3% inflation every year for 5 years, and taxpayer in 22% marginal bracket. Then the real return after taxes every year is (1-.22)*3% = 2.34%. Compounded over 5 years that amounts to a difference of $366, or 3.66% on $10K. (I'll ignore interest just for simplicity, which won't be too far off if coupon rate is very low). If your marginal tax bracket is that much higher then, either because rates have increased or your income has gone up, then it is a wash after you withdraw the money then. In my case, I expect when RMDs begin, my tax bracket will indeed go up. So it really depends on each individual's tax situation as well as one's personal guess as to future tax rates. All that said, I do have my TIPS ladder in tax-deferred space but mostly because I didn't have sufficient funds to purchase it in my taxable accounts.
Bottom line: if the decision is TIPS in taxable or no TIPS, then subject to one's own individual tax situation, then I would vote for TIPS in taxable. If the choice is TIPS in taxable or TIPS in tax-deferred, then a more careful study is warranted to see what makes the most sense, though in the absence of such a study, I would vote for TIPS in tax-deferred.

Wrench

Yet a more careful study needed it the choice in tax-deferred were Traditional or Roth?

[poker27]

Is there a post somewhere that ‘explains’ TIPs?

I recently sold some IBonds and was going to put it into 20yr treasuries, but feel foolish for not understanding TIPs given this wildly popular thread

[yankees60]

Your real yield to maturity (before taxes) is not the 3% inflation rate. It is the inflation rate PLUS the YTM. The calculation above with 3% inflation makes sense if your YTM is zero. If you invested in nominal bonds with a 3% yield in taxable you would also come out behind in real terms after taxes if inflation was 3%. You would perhaps be a bit less behind in real terms with 3% yield on a stock index fund because you would be paying capital gains rates, but you also would be paying taxes on annual distributions as long as you hold the fund.

The only difference is whether taxes on inflation are deferred and paid in bulk when gains are realized , or paid annually on unrealized gains, leaving much less to pay on withdrawal.
Which works out better depends on your individual tax situation, plus unknown future changes in tax laws.

At least that is my understanding.

Assume a 0 real YTM, 0 coupon n-year TIPS. When held in taxable, you get a real after-tax value at maturity of product(i from 0 to n,(1+inflation_rate_i*(1-tax_rate_i))/inflation_rate_i). This formula depends on inflation rates, and they do not cancel out nicely (like they would in the Roth or tax-deferred cases).

Let's say you could get a 0 coupon 0 real YTM TIPS maturing September 2040 today for $1000. Let's also say that your marginal tax rate each year will be 30%. If inflation is a constant 2%, then your after-tax value at maturity in today's dollars would be $909.92. If inflation is a constant 10%, then your after-tax value at maturity in today's dollars would be $642.48.

If you buy the same bond in a Roth account, you get $1000 either way. If you buy the same bond in tax-deferred you get $700 either way. Only in taxable does what you get depend on what inflation ended up being.

Obviously, you can get lots of very different numbers by having different sequences of inflation rates and tax rates (and accounting for YTM and coupons). However, the fact remains that the real after-tax return when held in tax-deferred or Roth does not depend on realized inflation, whereas it does when held in taxable. Not the end of the world, perhaps, but to me not a desirable feature for an investment designed to eliminate exposure to the unexpected or unpredictable component of inflation.

" However, the fact remains that the real after-tax return when held in tax-deferred or Roth does not depend on realized inflation, whereas it does when held in taxable. Not the end of the world, perhaps, but to me not a desirable feature for an investment designed to eliminate exposure to the unexpected or unpredictable component of inflation."

Persuasive ....

[watchnerd]

Is there a post somewhere that ‘explains’ TIPs?

I recently sold some IBonds and was going to put it into 20yr treasuries, but feel foolish for not understanding TIPs given this wildly popular thread

YouTube has great explainer videos

[Lyrrad]

Is there a post somewhere that ‘explains’ TIPs?

I recently sold some IBonds and was going to put it into 20yr treasuries, but feel foolish for not understanding TIPs given this wildly popular thread

Here’s my quick attempt. I assume I will get corrected quickly if I am wrong.

Each TIPS typically starts with a par value set to $1000 which is guaranteed to be returned at maturity. The principal value is adjusted by changes in CPI-U since the issuance date and affects the amount received at maturity by the same percentage.

Every six months, a coupon is distributed as interest. It is the half the annual interest rate multiplied by the current inflation value multiplied by the current inflation adjustment to this point.

In a taxable account, you will receive tax forms for the coupon payments as well as any inflation adjustments to the principal value as an adjustment OID.

You can buy them at auction or the secondary market. The yield quoted is analogous to the fixed rate of I Bonds, but the market value can fall unlike I Bond redemption values.

TreasuryDirect also describes them on their web page: https://treasurydirect.gov/marketable-securities/tips/

[poker27]

Is there a post somewhere that ‘explains’ TIPs?

I recently sold some IBonds and was going to put it into 20yr treasuries, but feel foolish for not understanding TIPs given this wildly popular thread

Here’s my quick attempt. I assume I will get corrected quickly if I am wrong.

Each TIPS typically starts with a par value set to $1000 which is guaranteed to be returned at maturity. The principal value is adjusted by changes in CPI-U since the issuance date and affects the amount received at maturity by the same percentage.

Every six months, a coupon is distributed as interest. It is the half the annual interest rate multiplied by the current inflation value multiplied by the current inflation adjustment to this point.

In a taxable account, you will receive tax forms for the coupon payments as well as any inflation adjustments to the principal value as an adjustment OID.

You can buy them at auction or the secondary market. The yield quoted is analogous to the fixed rate of I Bonds, but the market value can fall unlike I Bond redemption values.

TreasuryDirect also describes them on their web page: https://treasurydirect.gov/marketable-securities/tips/

Appreciate it! So similar to IBonds, you get a fixed rate + an inflation adjusted? So right now it’s 2.5% fixed + inflation?

Is the interest paid just deposited into your treasury account? Is the interest paid both the fixed + inflation?