Just a public service announcement - the auction reopened today and closes on Monday. These are the same 2029s originally priced in January with the 2.5% coupon. They're trading a bit above par in the secondary market, yielding around 2.33%.
That would be correct.Is that 2.5% above inflation
Well, 2.5% above the CPI, anyway. A lot of people (myself included) would question whether or not that really captures the inflation most of us feel, but that's a separate discussion...Is that 2.5% above inflation
Just a public service announcement - the auction reopened today and closes on Monday. These are the same 2029s originally priced in January with the 2.5% coupon. They're trading a bit above par in the secondary market, yielding around 2.33%.
The biggest risk to TIPS that I can see (when held to maturity) is the risk that "real" inflation is not adequately captured in the CPI. Other than that, the credit risk is as safe as can reasonably be expected, and you lock in a sure-thing 2%+ real return (relative to the CPI). Of course, in a mutual fund you can't hold to maturity so there is risk that the fund will decline in value. That's why I prefer holding individual TIPS to maturity (something I wouldn't do with corporate bonds because of credit risk).There are reasons to own TIPS. I think it's pretty easy to time the purchase as well. TIPS are not as safe as many people have been led to believe. Don't pay too much for your insurance.
Yes, Nov-Dec 2008 was a much better time to buy TIPS. Such a time will come again.
Mine were priced to yield between about 2.8% and 2.9% when I bought in November. As I mentioned earlier, these are issues that mature in 2016 and 2025.What were the TIPS yielding back then?
You seem to have a problem with loss aversion which is a well-known behavioral finance trap. You have got to get over this and make unemotional decisions. Tax-loss harvesting is helpful: sell low, buy low. That goes for equities and bonds. So selling losing bonds to buy bonds at a low price is just fine. Of course, rebalancing is also helpful.Yes, but the "problem" for me was, I would be selling something to buy those TIPS. My bond funds and equities were both down of course, so in a way, those TIPS didn't look so cheap when I thought about buying them with stuff that I'd have to sell at lows.
Charts galore show the answer: St. Louis Fed: Series: DFII10, 10-Year Treasury Inflation-Indexed Security, Constant MaturityWhat were the TIPS yielding back then?
-ERD50
You seem to have a problem with loss aversion which is a well-known behavioral finance trap. You have got to get over this and make unemotional decisions. Tax-loss harvesting is helpful: sell low, buy low. That goes for equities and bonds. So selling losing bonds to buy bonds at a low price is just fine. Of course, rebalancing is also helpful.
Charts galore show the answer: St. Louis Fed: Series: DFII10, 10-Year Treasury Inflation-Indexed Security, Constant Maturity
St. Louis Fed: Series: DFII20, 20-Year Treasury Inflation-Indexed Security, Constant Maturity
So buy 10-year TIPS when the blue line is above 2.5%.
I bought VIPSX (Vanguard TIPS fund) in late Oct 2008 when yield was about 2.6% (It was 3% the week before and later in Nov-Dec). I sold in late March 2009 when the yield dropped to 1.35% and made a tidy capital gain in that 5 months.
TIPS lose value when deflation occurs or the threat of deflation is present. Here's today's article on global deflation
Global Deflation Pandemic Brews - WSJ.com
There are reasons to own TIPS. I think it's pretty easy to time the purchase as well. TIPS are not as safe as many people have been led to believe. Don't pay too much for your insurance.
TIPS will barely keep up with themselves with respect to inflation, so I think they will do no good helping your pension combat inflation.It seems to me that one good reason to buy TIPS is if you have a non-COLA'd DB pension. Your big risk on the pension is inflation, but deflation actually makes your pension more valuable. Therefore, TIPS provide an offsetting position.
At least I hope I'm right on this analysis, since this is what I'm doing.
It seems to me that one good reason to buy TIPS is if you have a non-COLA'd DB pension. Your big risk on the pension is inflation, but deflation actually makes your pension more valuable. Therefore, TIPS provide an offsetting position.
At least I hope I'm right on this analysis, since this is what I'm doing.
?? Assuming there is no tricksterism with the CPI, TIPS will exceed inflation by 2+%, right? That may not be a huge gain, but it ain't "no good" either. Someone looking for a rock-solid way to have a portion of his portfolio keep up with inflation could do a lot worse. If we have inflation combined with a slow/stagnant economy (depressing commodity prices and stock price growth), TIPS would look very good. And, if we get a very long period of deflation, they still do okay (held to maturity, especially if bought at issue or early in their term).TIPS will barely keep up with themselves with respect to inflation, so I think they will do no good helping your pension combat inflation.
I just don't see how having a few TIPS is going to make a non-COLA'd pension keep up with inflation.
.
Well, as some people have said here before, many of us can live with being half right but not 100% wrong. I think that is one of the key values of diversification even in retirement (some might say *especially* in retirement since you are so dependent on the performance of your assets).if a significant portion of your FIRE status is dependent on a non-COLA'd pension, you need to make a defensive effort to construct the balance of your portfolio to do well in an inflationary environment. TIP's, equities, commodities........... Pay your money, take your chances......
But if your spending habits don't match the CPI, it may not be all it's cracked up to be.
CFB would always trot this out, and it always struck me as a hollow statement. True, but hollow.
The question isn't whether TIPS are going to keep up with my Personal Inflation Index. The Q is are they a decent hedge against inflation in general and/or are they better/worse than any other inflation hedge available to me.
So I don't think it's really "hollow." I think anyone who is considering TIPS needs to understand this. People with different consumption patterns in today's economy are likely to have different personal rates of inflation, and possibly very different. I think most people educated enough to understand TIPS understands that their personal rate of inflation isn't going to exactly match the CPI, but I think some people may not realize just how different theirs can be.
Description: 19-Year 6-Month TIPS
Term: 19-Year 6-Month
Series: TIPS of January 2029
Interest Rate: 2-1/2%
High Yield: 2.387%
Price: $101.340316
Allotted at High: 97.30%
Accrued Interest*: $1.08259
Total Tendered**: $13,748,204
Total Accepted**: $6,150,304
Issue Date: 07/31/2009
Dated Date: 07/15/2009
Original Issue Date: 01/30/2009
Maturity Date: 01/15/2029
CUSIP: 912810PZ5
*Per $1,000
**In thousands
Auction Results Press Release:
http://www.treasurydirect.gov/instit/annceresult/press/preanre/2009/R_20090727_3.pdf
Historical Auction Results:
http://www.treasurydirect.gov/instit/annceresult/query/query.htm