Buying TIPS in the secondary market

[SteveL]

Quote:

Originally Posted by FIRE'd@51 This may be true, although, from your Dec and Jan tables of index ratios, it looks like you are guaranteed to lose about 2.4% of accrued principal between today and the end of January.

Since I hold all bonds until maturity, the trick is to time a TIP purchase so that the price paid, plus the current inflation index for that bond adds to about the amount of principal you get back at maturity.

For the TIP I bought yesterday, the price plus index meant I paid about $25100 for a $25k TIP. At maturity, you always get back face no matter what.

For those who are interested in buying individual TIPS, this is a list of all the TIPS issues from the Treasury.

• 3-5/8% 30-year TIPS due April 15, 2028
• 3-7/8% 10-year TIPS due January 15, 2009
• 3-7/8% 30-year TIPS due April 15, 2029
• 4-1/4% 10-year TIPS due January 15, 2010
• 3-1/2% 10-year TIPS due January 15, 2011
• 3-3/8% 30-1/2-year TIPS due April 15, 2032
• 3-3/8% 10-year TIPS due January 15, 2012
• 3% 10-year TIPS due July 15, 2012
• 1-7/8% 10-year TIPS due July 15, 2013
• 2% 10-year TIPS due January 15, 2014
• 2% 10-year TIPS due July 15, 2014
• 2-3/8% 20-1/2-year TIPS due January 15, 2025
• 0-7/8% 5-1/2-year TIPS due April 15, 2010
• 1-5/8% 10-year TIPS due January 15, 2015
• 1-7/8% 10-year TIPS due July 15, 2015
• 2% 10-year TIPS due January 15, 2016
• 2% 20-year TIPS due January 15, 2026
• 2-3/8% 5-year TIPS due April 15, 2011
• 2-1/2% 10-year TIPS due July 15, 2016
• 2-3/8% 10-year TIPS due January 15, 2017
• 2-3/8% 20-year TIPS due January 15, 2027
• 2% 5-year TIPS due April 15, 2012
• 2-5/8% 10-year TIPS due July 15, 2017
• 1-5/8% 10-year TIPS due January 15, 2018
• 1-3/4% 20-year TIPS due January 15, 2028
• 0-5/8% 5-year TIPS due April 15, 2013
• 1-3/8% 10-year TIPS due July 15, 2018

More recent TIPS have lower indexes. Your broker will usually have most of these available for resale, and can quote to you the yield to maturity for each bond.
Yesterday, pricing for most bonds produced YTM of about 3%+.

[Maurice]

Quote:

Originally Posted by samclem So, how does one look at the secondary market to figure out what news TIPS will likely yield? I'm thinking about buying 20 year TIPS in the January auction, but would like to know going in what the result is likely to be.

You can look at how the closest maturity is trading on Bloomberg the week of the auction, it should be a good indicator.

Bloomberg.com: Government Bonds

[Maurice]

I'll also add that the Treasury tries to estimate the yield when setting the coupon - it seems they are targeting these to sell around par. They don't get it exactly right, of course, but they're close. Last year they set the coupon at 1.75 and I think the auction came out around 1.8.

[SteveL]

There is an ETF for TIPS symbol TIP which is a good tool to use to get an idea of the current pricing of and demand for TIPS. The 52week range was 84 to 112. Pricing is volatile. Today, the TIP etf is trading over 101. Just two days ago before the latest FED cut, it was in the 96 range. It is obviously better to buy at the lower end.