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Old 01-11-2010, 07:19 PM   #381
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Thanks!

I had been manually calculating ISM interest every month based on the BLS data. As part of that, I'd calculate the effective yield for me based on my average price and I was doing that just as you illustrate. But I got tired of the task a few months ago and ......... well, you know how it goes......

But, in your opinion, what is the best ISM number to compare to the fixed component yield of 1.43% from todays ten yr TIPS auction? 2.05%? 3.17%$ 5.6%?
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Old 01-11-2010, 07:30 PM   #382
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Originally Posted by FIRE'd@51 View Post
It's the real coupon yield plus 5.6%
Sorry, we're cross posting......

So 5.6% + 3.17% = 8.77% vs the TIPS 1.43% ?
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Old 01-11-2010, 08:13 PM   #383
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Sorry, we're cross posting......

So 5.6% + 3.17% = 8.77% vs the TIPS 1.43% ?
Yes, that is roughly correct, in a zero-inflation world.

Strictly speaking, the YTM would be a little less, since the YTM calculation implicitly assumes reinvestment of the coupons (it is an IRR calculation). Since the price is accruing toward par, the average price would be 20.58 ( 0.5 x (16.15 + 25) ), so the current yield part of the YTM would be about (2.05) / 0.82 = 2.5%. When added to the growth of 5.6%, you would get a YTM of about 8.1%. Technically, this would be the number Bloomberg would compare to the 1.43% TIPS in a zero-inflation world. With positive inflation the real YTM would be higher due to what we discussed above.
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Old 01-11-2010, 09:57 PM   #384
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Thanks! Very helpful. I appreciate your patience with my ongoing questions.
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Old 01-15-2010, 10:07 AM   #385
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The December year-over-year change in CPI-U (released today) was 2.72%. This means, the April annualized interest payment (on par) for OSM will be 4.72%. At a price of 16, this is an annualized current yield of 7.4%. Here are the OSM payments on par for the next three months:

Feb 1.82%
Mar 3.84%
Apr 4.72%

For ISM, add 5 basis points. This follows a Jan payment of 0.71%.
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Old 01-15-2010, 10:18 AM   #386
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The December year-over-year change in CPI-U (released today) was 2.72%. This means, the April annualized interest payment (on par) for OSM will be 4.72%. At a price of 16, this is an annualized current yield of 7.4%. Here are the OSM payments on par for the next three months:

Feb 1.82%
Mar 3.84%
Apr 4.72%

For ISM, add 5 basis points. This follows a Jan payment of 0.71%.
Thanks, from a spreadsheet-lazy individual. Good to finally see a little income flowing from these puppies.
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Old 01-15-2010, 12:16 PM   #387
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Good to finally see a little income flowing from these puppies.
Yeah, it sure is. Although hoping for high income due to high inflation seems a little twisted. I guess I'll say that if there has to be inflation, at least my ISM is paying higher interest.

Of course with ISM/OSM there always has to be something to fret about. Today I notice SLM plunged over 5% and haven't noticed why yet.......

And thanks for the calculations FIRE'd.
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Old 01-15-2010, 12:18 PM   #388
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Yeah, it sure is. Although hoping for high income due to high inflation seems a little twisted. I guess I'll say that as long as there has to be inflation, at least my ISM is paying higher interest.
Well we get a bonus on every bit of inflation through ISM/OSM (due to the interest being paid on par value), so let's have it!

I may be a little unique in this respect on a FIRE board, but I happen to have a lot of fixed rate debt (student loans and mortgage) that would do excellently with some nice steady medium to high inflation (the 5-7% variety).

Assuming the ole salary keeps up with inflation, which it hasn't so far.
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Old 01-15-2010, 12:27 PM   #389
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Well we get a bonus on every bit of inflation through ISM/OSM (due to the interest being paid on par value), so let's have it!

I may be a little unique in this respect on a FIRE board, but I happen to have a lot of fixed rate debt (student loans and mortgage) that would do excellently with some nice steady medium to high inflation (the 5-7% variety).

Assuming the ole salary keeps up with inflation, which it hasn't so far.
There's no doubt that inflation (within limits) helps some folks and hurts others. Our pension income (covers roughly half our budget) is COLA'd - light (one COLA'd with a cap, the other no COLA at all) so a steady diet of 5% - 7% inflation would be painful over the long run. That's why I own some TIPS, TIP and ISM plus some equities I judge as likely to rise with inflation.

I hope the economy recovers to the point where your normal salary increases are possible for your company.
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Old 01-15-2010, 12:34 PM   #390
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There's no doubt that inflation (within limits) helps some folks and hurts others. Our pension income (covers roughly half our budget) is COLA'd - light (one COLA'd with a cap, the other no COLA at all) so a steady diet of 5% - 7% inflation would be painful over the long run. That's why I own some TIPS, TIP and ISM plus some equities I judge as likely to rise with inflation.

I hope the economy recovers to the point where your normal salary increases are possible for your company.
Most definitely. There will be winners and losers with moderate to high inflation. non-cola'd pension holders and traditional fixed rate debt holders won't be some of them unfortunately.

Yeah, I hope the economy picks up so there are plenty of new jobs at different employers so I can get a salary increase at a new company. I have given up on the current employer for a number of reasons. Just collectin a paycheck till something better stumbles into my lap.
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Old 01-18-2010, 01:57 PM   #391
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Although hoping for high income due to high inflation seems a little twisted.
Well, I'd hardly call the year-to-year increases that we've been seeing
"high inflation" and CPI is still not back to it's 219+ peak in mid-2008.
(Newbies see: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt)

At any rate, it's better than the horror scenario of prolonged deflation ...
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Old 01-18-2010, 08:51 PM   #392
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the horror scenario of prolonged deflation ...
I'd hardly call the modest deflation we experienced in this recessionary period "the horror scenario of prolonged deflation."

Perhaps if we're fortunate, our leaders will guide us down a path between deflation and prolonged, high inflation.
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Old 01-19-2010, 03:27 AM   #393
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I'd hardly call the modest deflation we experienced in this recessionary period "the horror scenario of prolonged deflation."
Gawd, I'm doing an awful job of expressing myself. I didn't mean to
say we've seen bad deflation, just that's it's comforting to see reasonable
inflation ...

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Perhaps if we're fortunate, our leaders will guide us down a path between deflation and prolonged, high inflation.
Ah, Dear Leader ...
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Old 02-22-2010, 10:28 PM   #394
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ISM up $0.47 today and now sits at $16.76. Anyone have any insite into the recent run-up? People just becoming less worried that Congress will put SLM out of business and cause their bonds to default?

I also noted that the 30 yr TIPS auctioned today sold to yield 2.229%, nicely over the 2 1/8 coupon.
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Old 03-01-2010, 07:39 PM   #395
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I also noted that the 30 yr TIPS auctioned today sold to yield 2.229%, nicely over the 2 1/8 coupon.
Bought a chunk of that in an IRA. If my whole portfolio throws off 2.25% real for the next 30 years I'll be fine. I like the idea of 3% better, but beggars can't be choosers.

The volatility on these bonds is going to be pretty awful. But I'm planning to simply ignore it. I won't mark them to market, just adjust the price based on the associated CPI index. I can't take money out of the IRA for ~30 years anyway, so it works out perfectly.
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Old 03-18-2010, 11:03 AM   #396
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With today's CPI-U release of 216.741, the year-over-year increase in CPI-U for February is 2.14%. The yield on par for OSM in June will be 4.14%, down from 4.63% in May, but up nicely from March's 3.84%.

After three years of hanging on to these puppies, incrementally averaging down, and opportunistically "arbing" between OSM and ISM, I actually have a small capital gain on my total position.
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Old 03-18-2010, 11:32 AM   #397
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After three years of hanging on to these puppies, incrementally averaging down, and opportunistically "arbing" between OSM and ISM, I actually have a small capital gain on my total position.
Looks like I'm right in there with you. I bought a bunch around 20+, and bought some more at 13-ish. And I've arbed it 8-9 times. So I'm probably even with the recent run ups, plus the yield over the years. I didn't think this would happen so quick when we were in the dumps a year ago.
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Old 03-18-2010, 06:34 PM   #398
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A paper profit on ISM/OSM who'd have thunk it. In my case mostly cause I picked up a couple of thousand shares at $11.20, which helps average out the ones I bought at $21. I did take some loss earlier so I am just barely positive, but we have been collecting some pretty decent interest payments especially compared to other bonds

If inflation picks up and if Sallie Mae actually pays us all back these will turn out to be very good investments. Plus Brewer will be happy that a crowd of angry ER's don't show up at his door, with pitch forks and copies of his early posting. J/K.

BTW, part of the health care bill includes a provision to transfer student loans back to the government loaning directly and cutting out Sallie Mae.

One thing is for sure these have been by far the most interesting bonds I've ever bought. They make my appreciated the ancient Chinese curse "may you live in interesting times"
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Old 03-18-2010, 11:50 PM   #399
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BTW, part of the health care bill includes a provision to transfer student loans back to the government loaning directly and cutting out Sallie Mae.
Yep, the gov't taking the student loan business is still my major concern. Yet, SLM was able to sell new issues earlier this week as they begin to prepare for an onslaught of existing debt coming due. I think those new bonds sold yielding a little over 8%.

If the gov't winds up putting SLM out of the student loan business, at least in terms of offering new loans, wouldn't they still be in the business of collecting the existing loans? Wouldn't those collections allow them to pay us hapless ISM/OSM owner back, at least partially?
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Old 03-19-2010, 04:13 PM   #400
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I see the SLM/OSM/ISM skyrocketing upward trend has taken a little pause today, to put it mildly!
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