Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
results of 20-year TIPS auction
Old 07-27-2004, 07:14 PM   #1
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
results of 20-year TIPS auction

In case you missed it, the new 20-year TIPS was auctioned today. Yield was 2.47% (coupon = 2 3/8%, price = 98.785). Matures Jan 15, 2025.

I bought a small truckload
__________________

__________________
wabmester is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: results of 20-year TIPS auction
Old 08-05-2004, 07:20 AM   #2
Recycles dryer sheets
 
Join Date: Jan 2005
Posts: 118
Re: results of 20-year TIPS auction

Corporate Inflation Protected Securities

Has anyone compared TIPS with privately issued inflation protected securities? Here is an example:

http://www.internotes.com/index.cfm?...tes&aid=100525

This security pays 1.95% + CPI, for a present payout of 5.22%. It pays monthly, unlike TIPS. Also, it pays out both the spread (1.95%) and the CPI, unlike TIPS, which adds the inflation adjustment to principal. Of course, at the end, you get a return of principal, which in real terms would have shrunk due to intevening inflation. There is added credit risk, but it is an investment grade bond.

These seem to me a good choice once one enters retirement. The fact that they pay out the inflation premium helps protect against the greatest risk of a stagflationary economy: being forced to sell stocks for income in a market slump.

Comments appreciated.

rapoole
__________________

__________________
rapoole is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 08:08 AM   #3
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: results of 20-year TIPS auction

The real yield on a 10-year TIPS is currently 2%. * So, I'm not sure why anybody would be willing to accept the corporate InterNotes deal. * It's taxable (TIPS are state-tax free), slightly lower yield, and higher credit risk. * The monthly payout and CPI payout wouldn't offset the downside in my view.
__________________
wabmester is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 08:25 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: results of 20-year TIPS auction

I'm unfond of the idea of paying taxes on the TIPS cpi adjustment and not getting the money that I paid the tax on until the bond matures and I get my principal back.

Also my state taxes are nil, so the tax treatment isnt advantageous.

If I believed CPI was an accurate inflation measure, I'd consider it. Even without that its hard to get 5% yields without going to REITS, High yields or long term muni's.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 10:00 AM   #5
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: results of 20-year TIPS auction

Quote:
If I believed CPI was an accurate inflation measure, I'd consider it.
It'd be interesting to see personal inflation rates from some hard-core quicken users.

The BLS says that inflation for the last 12 months has been 3.3%, but the first 6 months of this year are already at 2.8% (annualizes to 5.6%). That seems about right to me, but I don't track my expenses that closely.
__________________
wabmester is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 10:14 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: results of 20-year TIPS auction

My personal inflation rate is pretty well controlled, but housing, cars and food (among other things) around where I live have gotten FAR more expensive than 3%.

I'd be real interested in anyones specific calcs on this if they've had essentially the same expenses for 3-4 years as to what their costs are and what the exact increases are.

In many individual instances in my own situation, I'm seeing a 30% increase from 3-4 years ago.

My truck - 28k to 38k if bought today
Milk - $1.65 a gal to 2.20
Rib eye steak - $4.50/lb to 6.50/lb
Eggs $1.20/doz to $1.60/doz
Cable bill - $32 to 40
HS internet - $35 to 42
Water $18/mo to $29
Gas $1.65/gal to $2.02/gal
Electricity rates up 38% per unit

Theres a 'story' behind many of these increases, but heck...if many 'regular purchase items' are increasing at a rate higher than inflation, the fact that some magical overall measurement says costs arent going up that much is of little help to a retiree (Early or not) trying to manage costs against income.

This is where I diverge on 'inflation protected securities' in the thinking that if you can live on the dividend, you can forget about the effects of inflation. I dont think so. I dont think its even close.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 12:18 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: results of 20-year TIPS auction

Our inflation over recent years falls into the general catagory of 'mission creep' usually along the lines of 'you cheap b#^tard. you can't take it with you.' Hence price rises get lost in newer toys, dining out more, etc.

TIPs and other inflation protected securities have an only game in town quality - I tend to look at Vanguard Target Retirement Income and muse - what do they know with a 25% position that I should be hearing?

AS for a corporate inflation adjusted bond - I'd guess they're betting on lower inflation over the period vs the higher rate on a straight bond over the same period.
__________________
unclemick is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 12:26 PM   #8
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: results of 20-year TIPS auction

Quote:
It'd be interesting to see personal inflation rates from some hard-core quicken users.
Wab, I'm a hard core Quicken user and know my expenses to the penny. I stripped out a few expenses that don't apply (ie: "house maintenance" because I did some major work last year, and "vacation" because we took an expensive trip to Vegas one year, etc.). Medical insurance also isn't there because I have no history of paying for it on my own until this month, so I can't compare year to year. Anyway, here are our expenses on most items that are comparable from one year to the next. For many things my costs are actually declining a bit since last year. I'm not seeing much inflation here. On these items I'm actually seeing deflation overall:

__________________
Bob_Smith is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 04:44 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Dec 2003
Posts: 1,375
Re: results of 20-year TIPS auction

Hi Bob Smith:

Afraid we aren't as organized as you are. But our perception is that with the exception of health ins., which has skyrocketed in the last few years, haven't found retail inflation to be a problem. Having gone through one of the worst periods (Mid 60's to early 80's), I remember feeling sorry for retirees, and used to wonder how they made ends meet.
Just out of curiosity, you stated that you paid $886 for heat and $1962 for utilities. (Is the $1962 your electric bill?)
Even though we live in Calif., with a little milder climate, we have a house that is all electric, and actually spend more than that on ours. (The electric rates in Calif. are among the highest in the country).
Anyway, for the time being, we will have to continue to enjoy the relatively low inflation rate.
Regards, Jarhead













__________________
Jarhead* is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 05:27 PM   #10
 
Posts: n/a
Re: results of 20-year TIPS auction

And we are not organized at all . In spite of
making a living as an accountant for years, my personal
records are about as bad as you can imagine. I have no idea how this year's expenses compared with last year's (wish I did) and am too lazy to find out.
I only measure with a "hand grenade " approach
as per unclemick's system. Anyway, I deal with
inflation by being heavy into real estate and by cutting
back spending continuously. So far so good. No TIPS but I
understand the appeal. On all of my long term stuff, the least I am getting is 5% and I'm not real happy with that. Still..............I can live with it for the time being.

John Galt
__________________
  Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 06:20 PM   #11
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: results of 20-year TIPS auction

Yes, Jarhead, our utilities include electric, water, sewer, and garbage. Overall I think expenses might be lower in rural areas.

I vaguely remember the inflation of the 70s, but I wasn't paying too much attention to economics at the time, and my salary always outpaced inflation. I do recall telling my wife that I truly did not believe we would ever be able to afford to buy a house with interest rates so incredibly high.
__________________
Bob_Smith is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 06:51 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: results of 20-year TIPS auction

Ah yes - the 70's - I only bought a duplex from my boss because he got a great new job out of town and made me an incredible offer including taking over an existing low mortgage. Always rented prior to then.
__________________
unclemick is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-05-2004, 07:41 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: results of 20-year TIPS auction

Bob - Am I over-reading what I already think into your spreadsheet or am I seeing that relatively uncontrollable and specific items are rising (eg: cable tv, clothes), while some controllable/collective items (misc) are dropping?

In other words are you cutting back and creating 'deflation' in some categories where you can affect what gets bought and what you pay?

With some napkin math, it looks like quite a few of your items have risen 6-8%.

Dont get me wrong...if inflation hits 10% tips and ibonds will look pretty swell.

My point is I dont think one should buy 2.5% tips and proclaim "I can live on the 2.5% yield, and dont have to worry about inflation at all because this instrument is inflation adjusted, and I'm now good for 20 years".

I think its more of a "I'll get 2.5% yield free of state taxes and some measure of inflation, and if inflation gets really, really ugly I'll be glad I have these, otherwise if real inflation remains tame or the govt continues to underestimate real inflation, they might not look so good".
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 05:19 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: results of 20-year TIPS auction

What about my -only game in town theory - how else can you fight inflation.

Yes I wondered about the misc cat. also. Hmmm - cut back on the variable part of the budget - and wait(yrs?) for my portfolio to adjust to inflation. Back to the 70's - real estate, collectibles?, gold/silver coins, - I think technology did in freeze dryed food (great for backpacking).

I had brief flights of fancy that my beaters would someday become classic cars - Olds Toranado, Camaro SS, XKE coupe, - instead went to used Toyota econobox, pickup truck/used camper.

Transportation, utilities, food/entertainment were the items I could/perhaps would vary to adjust to inflation on the budget. But if we're looking at a long stretch and I don't want to 'brown bag' the rest of my ER - other than TIPs - sans a 'whip inflation now' button -
__________________
unclemick is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 11:31 AM   #15
Full time employment: Posting here.
 
Join Date: Sep 2003
Posts: 902
Re: results of 20-year TIPS auction

Quote:
Bob - Am I over-reading what I already think into your spreadsheet or am I seeing that relatively uncontrollable and specific items are rising (eg: cable tv, clothes), while some controllable/collective items (misc) are dropping?
TH, I wouldn't read too much into it - all I can say for sure is that our standard of living has been very consistent. And we do not operate on any kind of a budget or forced spending limits. I don't think there was any cutting back that would account for the deflation, but I can't be sure. The only way to know for sure is to compare exact items - and I have no way of doing that. I went back and looked at another year (8/1/2001 - 7/31/2002) and the total was $20,119. So all three years are very close to the same, and our standard of living for those three years was very close to the same.

While TIPS returns are subject to manipulation by the government, regular bonds have not been a reliable way to keep ahead of inflation and they have had extremely long stretches where they have performed dismally relative to inflation. Furthermore, I suspect there will be an outcry if the BLS gets too far off the mark with their CPI calculations because so much hinges upon an accurate CPI (wages, SS, SSDI/SSI, etc.). TIPS are only a drop in the bucket and they can't screw TIPS holders without hitting almost everyone else at the same time. I'm much more concerned about the performance of bonds going forward and about my personal inflation rate (with health care factored in) than I am about manipulation of the CPI. I expect to get dinged a little, but with regular bonds I'd be exposed to a much larger downside.
__________________
Bob_Smith is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 02:42 PM   #16
Full time employment: Posting here.
 
Join Date: Apr 2004
Posts: 802
Re: results of 20-year TIPS auction

Your steaks are high $$ because Bush is in the cattlemen's/processor's pockets. You have shut out the live cattle trade between Canada and the U.S. because of a single case of BSE a year ago in AB. The science says "get over it" but a few of your Senators are calling the shots, so you will have to live with it.
__________________
Zipper is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 02:52 PM   #17
Recycles dryer sheets
 
Join Date: Mar 2004
Posts: 232
Re: results of 20-year TIPS auction

TH, where do you get milk for $2.20 a gallon? Can you send me some?

Anne
About $4 in Connecticut
__________________
trumpeting_angel is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 03:04 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: results of 20-year TIPS auction

Yeah I know about the canadian beef situation, and you're right. On the other hand, that mad cow thing might have just been a ploy, knowing the bushies would stop importing canadian beef, allowing the canadian shock troops more protein intake to bulk them up just prior to the invasion.

Anne...actually the milk peaked and dropped back down a little...something about everyone getting "out of the milk business" or some such. I guess they got back in. I can get two gallons at the warehouse club for $3.20 today. Still around two bucks a gallon at the grocery store.

__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-06-2004, 04:39 PM   #19
Recycles dryer sheets
 
Join Date: Mar 2004
Posts: 232
Re: results of 20-year TIPS auction

Actually, with a modicum of shopping around, I'm at the $3.50 range.

They opened a Costco nearby, and I (along with everyone in about 4 towns) went in to see what was happenin'.

All those places look alike to me. Even though I have more time these days, I don't have enough time to be able to stand spending much of it inside those places, comparison shopping. On a large purchase, ok. But I'd rather cut back more on buying, than spend more time shopping around in places like that.

Perhaps this is just a reaction to still working a fair amount, and having spent too many nice days inside an office.

Anne
__________________
trumpeting_angel is offline   Reply With Quote
Re: results of 20-year TIPS auction
Old 08-07-2004, 05:05 AM   #20
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: results of 20-year TIPS auction

Anne,
According to mgmt and articles about Costco, they will not mark up any item in the store by more than 14%, so witht he exception of electronics which have tight margins everywhere, I don't spend any time bothering to comparison shop if the item is at Costco -- I know I am not being gouged at 14% or less on their already industry-leading wholesale prices.

Their other motto is "there is no crap in our stores".

I can vouch for that based on personal tire-kicking. Knowing there is so much quality stuff in Costco at great prices helps me overlook the sterile industrial flourescent quality and I enjoy my visits- quite unusual for me as I normally detest shopping!

ESRBob
__________________

__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Bond Funds? Question about Rational Investing Patrick FIRE and Money 100 10-26-2006 03:01 PM
$80,000 + a Year scoopsteve FIRE and Money 33 02-06-2006 05:41 PM
TIPS vs. Mutual Fund with TIPS? Telly FIRE and Money 12 07-16-2003 12:21 PM
I-Bonds vs. TIPS? jonathan_b FIRE and Money 2 04-07-2003 08:05 AM
New version of FIRECalc for testing dory36 FIRE and Money 24 11-25-2002 08:12 AM

 

 
All times are GMT -6. The time now is 05:01 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.