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View Poll Results: well, are ya, punk?
Yes 2 6.06%
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Already own my allocation of TIPS/I-Bonds 10 30.30%
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 04:17 PM   #21
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
for those wanting to relive the 1970's.
I'll tell you what folks.......at my age "reliving the 70s" sounds pretty
good.

JG
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 04:41 PM   #22
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Re: Buying 5-year TIPS at Monday's auction

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Originally Posted by Mr._johngalt
I'll tell you what folks.......at my age "reliving the 70s" sounds pretty
good.

JG
I'd be glad to be 20 again (maybe) but I could do without the 20% inflation.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 06:59 PM   #23
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
I'd be glad to be 20 again (maybe) but I could do without the 20% inflation.
and the polyester leisure suits
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 09:35 PM   #24
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Re: Buying 5-year TIPS at Monday's auction

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and the polyester leisure suits
Never owned one. My brother bought one and I thought he looked like an idiot. Actually, he did before but the leisure suit really nailed it. I did have one of those polyester/black light shirts.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 10:16 PM   #25
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Re: Buying 5-year TIPS at Monday's auction

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Originally Posted by wab
2.65% real on the 5-year is the best we've seen in years, so it looks like a pretty good deal to me, but I would still keep some cash in reserve just in case we see even better deals in the months/years ahead.
Well, I am keeping cash in reserve, only buying 4% of portfolio on Monday, investing
the other 16% into TIPS over the next 4 years.

Please help me to understand how it is that we refer to the return on this current
TIPS as 2.65% ?? I see it at Bloomberg the same as you do; but how is it calculated ?
I realize the price of the bond is $98.27 per $100 of par value, but I see that
2.375% * (100/98.27) is only about 2.417%. Maybe because the principal at
maturity is based on the par value and not the price, but I still cannot make the
number work out.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 10:23 PM   #26
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
You can almost always get better rates on FDIC insured CDs. If you spread it around you can easily cover a few hundred thousand with the insurance and still get a nominal 1/2% over 5 yr Treasuries.
Yeah, except the Treasury interest is state tax exempt, which I figure just about
buys me that 1/2% in my state where marginal state tax is 7%:

Treasury yield 5% * (1-0.25) = 3.75%
CD yield 5.5% * (1-0.25-0.07) = 3.74%
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Re: Buying 5-year TIPS at Monday's auction
Old 10-21-2006, 11:03 PM   #27
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by JohnEyles
Please help me to understand how it is that we refer to the return on this current
TIPS as 2.65% ?? I see it at Bloomberg the same as you do; but how is it calculated ?
I realize the price of the bond is $98.27 per $100 of par value, but I see that
2.375% * (100/98.27) is only about 2.417%. Maybe because the principal at
maturity is based on the par value and not the price, but I still cannot make the
number work out.
The math is tedious (which is why I keep referring you to that same YTM page/calc), but the concept is pretty simple: the market yield changes all the time, so prices of bonds change to reflect the current market yield. When you buy a bond below par, you're getting both the remaining coupons and the principal at a discount. If you do the calculation for a 4.5 year maturity with a 2.375 coupon at 98.27, you should get the same YTM Bloomberg is showing you: 2.65%.

BTW, the treasury also tracks the real yield curve on a daily basis, including historical information:

linky
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 08:28 AM   #28
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by JohnEyles
Yeah, except the Treasury interest is state tax exempt, which I figure just about
buys me that 1/2% in my state where marginal state tax is 7%:

Treasury yield 5% * (1-0.25) = 3.75%
CD yield 5.5% * (1-0.25-0.07) = 3.74%
Ah, the joy of not having a state income tax.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 01:05 PM   #29
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by 2B
Ah, the joy of not having a state income tax.
Yeah, but I get free health insurance at 53yo (as a state retiree, if I start
annuitizing TIAA-CREF).

And one of the top few public university systems in the country to
work at, send kids to, and raise the general quality of life.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 02:15 PM   #30
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by JohnEyles
Please help me to understand how it is that we refer to the return on this current
TIPS as 2.65% ?? I see it at Bloomberg the same as you do; but how is it calculated ?
I realize the price of the bond is $98.27 per $100 of par value.................
Actually, bond prices are quoted in 32nds, so the price shown on Bloomberg is 98 and 27/32. Thus, the price of the TIPS is 98.84375, not 98.27. You can calculate the YTM on a financial calculator by using:

PV = 98.84375

FV = 100

N = 9

PMT = 2.375/2 = 1.1875 (since payments are semi-annual)

My HP12C gives a semi-annual YTM of 1.3246% which when doubled gives 2.65% as shown on Bloomberg
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 04:35 PM   #31
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Re: Buying 5-year TIPS at Monday's auction

My calculations show that inflation would have to be over 3% (around 3.1%) to yield the same interest as a 6% CD does. If you assume a 5% state income tax on a 6% CD (5% pf $6000) and you subtract the $300 for State income tax, you have an effective yield of about 5.74% now.

So in order to do better than a CD at this time, inflation would have to be reported at about 3.10%. Am I correct in this thinking?

Of course, you are pressed to find 6% CD's right now. There are very few, mostly from credit unions offering to certain groups of people.

Then again. Who do you trust more in safety right now. The banks or our government with over 8 trillion debt and still counting.

Rememver past performance in no guarantee to future performance (or safety)

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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 06:36 PM   #32
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by modhatter
If you assume a 5% state income tax on a 6% CD (5% pf $6000) and you subtract the $300 for State income tax, you have an effective yield of about 5.74% now.

Of course, you are pressed to find 6% CD's right now. There are very few, mostly from credit unions offering to certain groups of people.
I have no idea what other states have as marginal rates, but 5% sounds low.
Plus you have to subtract the state rate from unity minus the federal marginal
rate, so it's not quite the same. It's moot anyhow, if you believe the conventional
wisdom that TIPS should be held in IRA-type accounts to avoid the "phantom
interest" - although I partially buy the argument that the phantom interest is
no different than DRIPs.

I ain't seen a CD anywhere near 6% recently. If I saw one for 6%, I might
very well cancel the TIPS order I have in now.

Coincidentally, I have a lottery application in to get a Grand Canyon river
rafting permit - so the next few days are gonna be real exciting for me,
although I guess there's no huge mystery about what the TIPS will sell at.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 06:41 PM   #33
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Re: Buying 5-year TIPS at Monday's auction

I bought 3, 6% CDs earlier this year (Pentagon Federal Credit Union seems to have semi-annual deals in Feb/Mar and Sep/Oct). If inflation spikes sometime during the next 5 years, I'll be glad I got the TIPS, though--they're a hedge. Else they'll do about as well as my MM accounts.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-22-2006, 11:50 PM   #34
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Re: Buying 5-year TIPS at Monday's auction

Yeah, those 6% penfed CD's were a bargain. More than 100bp over market. I bought a slug. (Oh, and I bought some CD's too. )
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 01:48 AM   #35
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Re: Buying 5-year TIPS at Monday's auction

Last week, I went through a list of AZ CUs and found one with a branch in Tucson offering 1 year CDs @ 6% APY. I loaded the truck up.
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 01:46 PM   #36
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Re: Buying 5-year TIPS at Monday's auction


So, what do people make of the auction result ? Looks like
they sold for $101.365114 per $100 according to the Treasury
website; I believe it for sure when I see check Schwab in a couple
days. I was expecting $98'ish, silly me, but I guess if you divide
the 101+ by the inflation factor since last April (1.02688 according
to Schwab) you get about 98.775, so still selling at a discount.


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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 02:43 PM   #37
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Re: Buying 5-year TIPS at Monday's auction

Unadjusted price was 98.68003 (inflation factor is 1.02721) for a YTM of 2.691%, so it looks like real rates have inched up a tad from the 2.65% we were looking at a couple of days ago.

http://www.publicdebt.treas.gov/of/r...ofl1023061.pdf
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 02:55 PM   #38
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Re: Buying 5-year TIPS at Monday's auction

Quote:
Originally Posted by FIRE'd@51
Unadjusted price was 98.68003 (inflation factor is 1.02721) for a YTM of 2.691%, so it looks like real rates have inched up a tad from the 2.65% we were looking at a couple of days ago.

http://www.publicdebt.treas.gov/of/r...ofl1023061.pdf
So I should be happy, right ?

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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 02:57 PM   #39
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Re: Buying 5-year TIPS at Monday's auction

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So I should be happy, right ?
Yep
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Re: Buying 5-year TIPS at Monday's auction
Old 10-23-2006, 03:47 PM   #40
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Re: Buying 5-year TIPS at Monday's auction

WooHoo--I'm...hedged!
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