TIPS vs. Treasuries - What Am I Missing?
Given that treasuries are yielding about 0.5% for maturities of two years, I figure I must be missing something on TIPS pricing.
Right now I can purchase a TIP that matures in 2 years for $96.22 (matures Jan 2011). This TIP has a coupon value of 3.5% and a yield to maturity of 5.193%. The index value is 1250. Even if worst case deflection causes a reversion in the index to 1000, I am still getting a yield of 3.5% on my investment of $96.22 per $100 of face value. Why would I even consider purchasing a short term treasury?
What am i missing? The only thing I can figure is that the price of $96.22 is not for $100 face value, but for $100 of indexed value. However, the math does not work out for this to be correct. Thanks,