Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 08:30 AM   #21
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by brewer12345
Youb, in another thread, we actually found out that the TIPS funds out there actually liquidate (or use STRIPS) and pay out the inflation adjustment. That being the case, they work just like ISM/OSM/PFK, and not like the underlying TIPS.
Brewer, I think we were wrong in that thread. I looked at their holdings and didn't see any STRIPS there, so I called Vanguard. They told me they paid the inflation adjustment out of incoming money from new investors. I believe you had originally suggested that,
__________________

__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 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: Sallie Mae CPI-linked bonds
Old 12-20-2006, 08:32 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by FIRE'd@51
Brewer, I think we were wrong in that thread. I looked at their holdings and didn't see any STRIPS there, so I called Vanguard. They told me they paid the inflation adjustment out of incoming money from new investors. I believe you had originally suggested that,
OK, same thing, then. They still pay out the inflation adjustment, just like the individual bonds.
__________________

__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 08:43 AM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by brewer12345
OK, same thing, then. They still pay out the inflation adjustment, just like the individual bonds.
Typo? Or am I getting confused? Don't the funds pay out the inflation adjustment like individual stocks (ISM, OSM, etc)? TIPS bonds add the inflation adjustment to prinicipal not payable until maturity. Yes?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 08:48 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by youbet
Typo? Or am I getting confused? Don't the funds pay out the inflation adjustment like individual stocks (ISM, OSM, etc)? TIPS bonds add the inflation adjustment to prinicipal not payable until maturity. Yes?
ISM/OSM/PFK are bonds, and they are the ones I was referring to. Individual TIPS don't pay out the inflation adjustment, but the TIPS funds do.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 08:53 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by brewer12345
ISM/OSM/PFK are bonds, and they are the ones I was referring to. Individual TIPS don't pay out the inflation adjustment, but the TIPS funds do.
OK. Just terminology then.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 09:57 AM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,641
Re: Sallie Mae CPI-linked bonds

I just started reading this thread and got my interest piqued. But I need some 101 counseling.

When I look at ISM on Schwab or Morningstar I can't tell anything useful about it except the price of 21.36. In fact, I would assume it is some sort of stock from what the sites say. You folks are describing it as a bond but the site makes no mention of that. Also the yield shows as a monthly figure with what I assume is a annual projection (6.8%). Is that the cumulative result of CPI and other interest? How would you figure out what you are buying? And what exactly is ISM, a bond, a bond fund, a stock?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 10:28 AM   #27
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,315
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by donheff
I just started reading this thread and got my interest piqued. But I need some 101 counseling.

When I look at ISM on Schwab or Morningstar I can't tell anything useful about it except the price of 21.36. In fact, I would assume it is some sort of stock from what the sites say. You folks are describing it as a bond but the site makes no mention of that. Also the yield shows as a monthly figure with what I assume is a annual projection (6.8%). Is that the cumulative result of CPI and other interest? How would you figure out what you are buying? And what exactly is ISM, a bond, a bond fund, a stock?
Try this link. Put ISM in the search box.

http://www.quantumonline.com/search.cfm
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 10:42 AM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by FIRE'd@51
Try this link. Put ISM in the search box.

http://www.quantumonline.com/search.cfm
Second that. Ignore what Schwab and Morningstar say.

ISM is a senior unsecured bond issued by Sallie Mae (SLM) and traded like a stock. Par value (what you get at maturity) is $25. In the meantime, you receive interest monthly based on the yOY change in the CPI plus 2.05% (based on $25 par value).
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 12:10 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,641
Re: Sallie Mae CPI-linked bonds

Thanks FIREd and Brewer. Quantum give a nice, concise description. You would think Schwab and Morningstar could do the same.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 12:11 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by donheff
Thanks FIREd and Brewer. Quantum give a nice, concise description. You would think Schwab and Morningstar could do the same.
Lack of retail investor interest for many, many years, unfortunately. All anyone cares about is stocks, so bonds that the public can actually buy and trade on an exchange tend to fall through the cracks.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 02:27 PM   #31
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,815
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by youbet
Any thoughts as to why it's trading so low ($21.35 at close 12-18)? The computed interest rate for all periods through 3/14/2007 is pretty low. And the inflation outlook seems benign. Anythng else come to mind?

Future interest rates (par basis) for ISM:

Dec 15 through Jan 14 = 4.11%

Jan 15 through Feb 14 = 3.35%

Feb 15 through Mar 14 = 4.02%

Your actual rate = $25/your price X the above rates.

edited to fix date.
I'm trying to get up to speed here. Taking Brewer's advice, I searched this forum and found an earlier thread with a CUSIP number (78442P601). Using that number on the Sallie Mae site, I got a "Pricing Supplement". I can use it to match your interest numbers. So that all makes sense.

But, reading the pricing supplement, I don't see anything about changing the maturity value to reflect inflation, or adjusting the par value when calculating monthly coupons. It seems like you need to do both to get real inflation protection. Am I missing something obvious?
__________________
Independent is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 02:32 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by Independent
But, reading the pricing supplement, I don't see anything about changing the maturity value to reflect inflation, or adjusting the par value when calculating monthly coupons. It seems like you need to do both to get real inflation protection. Am I missing something obvious?
Par value desn't change, it is always $25 a "share." With TIPS, you get paid the spread over inflation and the actual inflation rate is tacked onto the par value. With ISM, you get paid monthly both the spread over inflation plus the actual amount of inflation. So with ISM, you get cash on the barrel-head, but with TIPS you let the actual inflation component ride.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-20-2006, 07:22 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,815
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by brewer12345
Par value desn't change, it is always $25 a "share." With TIPS, you get paid the spread over inflation and the actual inflation rate is tacked onto the par value. With ISM, you get paid monthly both the spread over inflation plus the actual amount of inflation. So with ISM, you get cash on the barrel-head, but with TIPS you let the actual inflation component ride.
Thanks. I don't know why I couldn't see that. I was probably too focused on TIPS to shift gears.

Now I can see how to calculate the 3.7% YTM if inflation is zero, and I can see how other inflation rates really give you a little extra if you buy at a discount (your later comment). Thanks for the education.
__________________
Independent is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-21-2006, 07:34 AM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,641
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by brewer12345
Par value desn't change, it is always $25 a "share." With TIPS, you get paid the spread over inflation and the actual inflation rate is tacked onto the par value. With ISM, you get paid monthly both the spread over inflation plus the actual amount of inflation. So with ISM, you get cash on the barrel-head, but with TIPS you let the actual inflation component ride.
Continuing in Bonds 101 mode, with a TIPS or an I-Bond does the fixed portion (e.g. 1.5%) always return against the original investment amount or does it return against the increasing par value. I.e if it returned $150 in year one against a $10,000 investment, in year ten would it still return $150 or would it return 1.5% of the current value? If the later over a long period the return on these these investments would level out and potentially reverse, right?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-21-2006, 07:37 AM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by donheff
Continuing in Bonds 101 mode, with a TIPS or an I-Bond does the fixed portion (e.g. 1.5%) always return against the original investment amount or does it return against the increasing par value. I.e if it returned $150 in year one against a $10,000 investment, in year ten would it still return $150 or would it return 1.5% of the current value? If the later over a long period the return on these these investments would level out and potentially reverse, right?
For TIPS, whatever the coupon rate is times the accreted par (not original) is the payment. Same thing with I bonds, although you don't actually receive the coupons in cash until you cash the I bond in.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-22-2006, 11:42 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,382
Re: Sallie Mae CPI-linked bonds

Just swapped ca 6000 OSM for 6000 ISM and pocketed a lttle over $4000. I figure the yield on ISM at this price is markedly better than OSM at $22.00

So much for market efficiency!

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-22-2006, 11:46 AM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by HaHa
Just swapped ca 6000 OSM for 6000 ISM and pocketed a lttle over $4000. I figure the yield on ISM at this price is markedly better than OSM at $22.00

So much for market efficiency!

Ha
Easiest trade in the universe. Congratulations: you are now an arbitrageur. Even beter wuld be to buy 6000 more ISM and short 6000 OSM.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-22-2006, 12:16 PM   #38
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Location: North Bay
Posts: 1,026
Re: Sallie Mae CPI-linked bonds

I joined this conversation late. Why again is OSM trading higher than ISM when OSM has a lower spread over inflation (by 5 basis points)?
__________________
scrinch is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-22-2006, 12:17 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by scrinch
I joined this conversation late. Why again is OSM trading higher than ISM when OSM has a lower spread over inflation (by 5 basis points)?
Beats the fcuk out of me. Retail investors are ill-informed morons, perhaps?
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Sallie Mae CPI-linked bonds
Old 12-22-2006, 12:18 PM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,382
Re: Sallie Mae CPI-linked bonds

Quote:
Originally Posted by scrinch
I joined this conversation late. Why again is OSM trading higher than ISM when OSM has a lower spread over inflation (by 5 basis points)?
Quote:
So much for market efficiency!
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha 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
CPI ... Your Confidence Level in this Statistic? Craig FIRE and Money 94 04-17-2006 12:37 PM
How people find us... asian carp?? dory36 Forum Admin 4 05-27-2005 01:07 PM
Some questions on bonds woolybully FIRE and Money 13 11-11-2004 05:04 PM
EE bonds to ??? cute fuzzy bunny FIRE and Money 1 12-24-2003 01:33 PM
The Scoop on High Yield Bonds Ted FIRE and Money 9 12-04-2003 01:03 PM

 

 
All times are GMT -6. The time now is 09:20 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.