BackcountryMe
Dryer sheet wannabe
- Joined
- Feb 20, 2013
- Messages
- 23
This is my first post and I've tried my best to post according to the rules, but I apologize in advance if I've made any mistakes!
I have a fascinating "hybrid bond" in my portfolio and I'm having trouble determining how to think about it, particularly with respect to the inflation protection it may provide.
Basically, it works like this:
-Long ago, my employer converted my defined benefit pension plan to a cash balance (yes, it sucks, I know, but that's a different conversation)
-This cash balance receives an employer contribution each month at a fixed rate
-In addition - and here is the interesting part - the cash balance earns a rate of interest every month equal to the average yield on the longest term Treasury Bond over the 24-month period preceding the last June 30th.
So basically, I have a "hybrid bond" that has the yield of the 30-year Treasury Bond with the duration of a ~1-year Treasury Bill. Granted, there is a slight lag in the yield, but the maximum "maturity" on this is 24 months.
So, my question is - does this provide me with inflation protection? If so, is this better than TIPS or worse?
My understanding is that real yields on the 30-year Treasury bond are nearly always positive, so my opinion is that the answer is yes, but I'm not sure if it's better than holding TIPS.
Thanks, everyone! I appreciate your input.
I have a fascinating "hybrid bond" in my portfolio and I'm having trouble determining how to think about it, particularly with respect to the inflation protection it may provide.
Basically, it works like this:
-Long ago, my employer converted my defined benefit pension plan to a cash balance (yes, it sucks, I know, but that's a different conversation)
-This cash balance receives an employer contribution each month at a fixed rate
-In addition - and here is the interesting part - the cash balance earns a rate of interest every month equal to the average yield on the longest term Treasury Bond over the 24-month period preceding the last June 30th.
So basically, I have a "hybrid bond" that has the yield of the 30-year Treasury Bond with the duration of a ~1-year Treasury Bill. Granted, there is a slight lag in the yield, but the maximum "maturity" on this is 24 months.
So, my question is - does this provide me with inflation protection? If so, is this better than TIPS or worse?
My understanding is that real yields on the 30-year Treasury bond are nearly always positive, so my opinion is that the answer is yes, but I'm not sure if it's better than holding TIPS.
Thanks, everyone! I appreciate your input.