Anyone else waiting for the 20 Year to hit 5.0%?

[goingoodsofar]

I’m 53. Keeping an eye on the 10 years. North of 5% and I will get some. I’m also hoping we get some spread between treasuries and high grade, non-callable corporate debt. Whenever I look I don’t see the reward in buying corporate debt with its increased risk.

 

[big-papa]

Nope. We built two 30 year TIPS ladders earlier this year that will take us to our mid 90's. No reason to think about it anymore.

Cheers.

 

[jim584672]

Where did you find the after auction quote?

https://www.cnbc.com/quotes/US20Y

 

[Earl E Retyre]

Short MSN article regarding 20 year auction today ...
- I removed the link since it didn't seem to work ...

• The Treasury Department sold $16 billion of newly issued 20-year bonds
• This was the first time the Treasury sold a 20-year note with a rate over 5% since October 2023. Back in the pandemic, it could sell its 20-year debt at 1.22%.
• Investors tend to prefer 10-year and 30-year debt, which are more liquid
• Regular quarterly issues of 20-year Treasury bonds were eliminated in 1986, but former Treasury Secretary Steven Mnuchin restarted them five years ago

 

[DrgLrd]

Investors tend to prefer 10-year and 30-year debt, which are more liquid

ELI5?

 

[Koolau]

At almost 82, I am not buying any fixed income investment out more than 5 years duration.

Same here - and I'm much younger than you are (only 78)!

 

[pb4uski]

Looks like the wait is over. Too bad I'm out of dry powder. I'm not sure how long it will last.

 

[jim584672]

Wow, deep discounts, those are almost like zero coupons.

 

[Earl E Retyre]

Looks like the wait is over. Too bad I'm out of dry powder. I'm not sure how long it will last.

View attachment 55848

Question … if the ytw of the first line is 5.195 and the coupon is 2.5, how come the discount price is 66.97 and not closer to 50 (half of 5.195)?

 

[Closet_Gamer]

I think 20 year TIPS at 2.7% may be even more compelling.

Do I think long term inflation will be at least in the 2.5% range? Yes I do.

If I’m wrong and it’s 2%, not a huge loss, but I pick up inflation protection above 2.5%.

I’ve never bought a bond with a maturity beyond 10 years but this tempting.

 

[dickoncapecod]

I think 20 year TIPS at 2.7% may be even more compelling.

Do I think long term inflation will be at least in the 2.5% range? Yes I do.

If I’m wrong and it’s 2%, not a huge loss, but I pick up inflation protection above 2.5%.

I’ve never bought a bond with a maturity beyond 10 years but this tempting.

Checking just in case: are you aware that in a TIP BOND, the inflation compensation comes as an addition to the principal terminal payment (you getting 20 years) but you must 0ay taxes on the peprincipal addition each year?
Regards, Dick

 

[Earl E Retyre]

Question … if the ytw of the first line is 5.195 and the coupon is 2.5, how come the discount price is 66.97 and not closer to 50 (half of 5.195)?

I am trying to understand if the cash flow is equivalent to 5.195% annually from the get go or if it is somehow backloaded to be equal to 5.195% 20 years from now. If the former I would buy.

 

[Fermion]

Checking just in case: are you aware that in a TIP BOND, the inflation compensation comes as an addition to the principal terminal payment (you getting 20 years) but you must 0ay taxes on the peprincipal addition each year?
Regards, Dick

Makes some sense to keep the TIPS in a Roth then?

 

[Out-to-Lunch]

Makes some sense to keep the TIPS in a Roth then?

They also work fine in a tIRA.

 

[Healthy Lifestyle]

I think 20 year TIPS at 2.7% may be even more compelling.

Do I think long term inflation will be at least in the 2.5% range? Yes I do.

If I’m wrong and it’s 2%, not a huge loss, but I pick up inflation protection above 2.5%.

I’ve never bought a bond with a maturity beyond 10 years but this tempting.

How about if you are 70 years old?

 

[jazz4cash]

ELI5?

My understanding is that 10 debt is a popular proxy for mortgages and things like that. I recall a stat that tje avg mortgage is paid off or refi’d in 7 yrs. 30 yr debt is desirable for life insurers, pension funds, etc. The 20 yr term just doesn’t have as much demand. I believe the 20yr was re- introduced a few yrs ago so maybe that is a factor also. I am sure this is over simplified.

 

[dickoncapecod]

They also work fine in a tIRA.

Also @Healthy Lifestyle. The taxation bit is just one problem. It is likely that a significant portion of your inflation compensation only arrives in the final cash flow 20yrs from now. Is that really appealing? Since I'm an income CEF investor with a portfolio yielding over 12%, I don't worry about inflation at all ---- so I may just be missing the attraction of TIPS. (IF I believed inflation was going to rise to, say 8% and stay there for a while, I'd be invested in a money market fund.)

 

[pb4uski]

Question … if the ytw of the first line is 5.195 and the coupon is 2.5, how come the discount price is 66.97 and not closer to 50 (half of 5.195)?

Because the math doesn't work the way you are thinking.

Is a 2/15/2045 maturity so the last semi-annual coupon was paid 2/15/2025. So in addition to the 66.974 you will pay 0.66 of accrued interest so your total outlay will be 67.638.

You will receive $1.25 twice a year for 20 years (40 interest payments) and $100 at maturity.

The semi annual yield is RATE(40,1.25, -67.638,100) or 2.55%. To annualize the 2.55% semi-annually =(1+2.550%)^2-1 = 5.165%... pretty close to the 5.195% YTM shown.

 

[pb4uski]

How about if you are 70 years old?

What if you live to 95 or 100 or longer? We are both 70 and it is likely that one or the other of us will live until our early 90s accordning to the longevity calculators.

And if you have a Healthy Lifestyle then it is probably even more likely.

 

[Closet_Gamer]

How about if you are 70 years old?

Well ... math is math and inflation is inflation.

Seems sensible if it meets your investment goals.

 

[Closet_Gamer]

Checking just in case: are you aware that in a TIP BOND, the inflation compensation comes as an addition to the principal terminal payment (you getting 20 years) but you must 0ay taxes on the peprincipal addition each year?
Regards, Dick

Yes, thanks. Only buy them in tax deferred accounts.

 

[Earl E Retyre]

Because the math doesn't work the way you are thinking.

Is a 2/15/2045 maturity so the last semi-annual coupon was paid 2/15/2025. So in addition to the 66.974 you will pay 0.66 of accrued interest so your total outlay will be 67.638.

You will receive $1.25 twice a year for 20 years (40 interest payments) and $100 at maturity.

The semi annual yield is RATE(40,1.25, -67.638,100) or 2.55%. To annualize the 2.55% semi-annually =(1+2.550%)^2-1 = 5.165%... pretty close to the 5.195% YTM shown.

Thanks, you’re awesome.

 

[Cayman]

Nope. We built two 30 year TIPS ladders earlier this year that will take us to our mid 90's. No reason to think about it anymore.

Cheers.

We chose TIPS too. Next to no cost for inflation insurance when we made our ladders. I've always been sensitive to the potential of inflation eating away the purchasing power of my retirement $. I would not be very comfortable with a long term treasury at 5%. Of course, that is me.

 

[Quattro73]

What if you bought the ishares ibond TIP etf product ? Since it is a TIP in an etf wrapper I think it is required to distribute the income. Which means it pays the coupon and the periodic inflation adjustment. I think. If so then wouldn’t you have effectively a floating rate income stream that is inflation indexed ?

 

[Closet_Gamer]

What if you bought the ishares ibond TIP etf product ? Since it is a TIP in an etf wrapper I think it is required to distribute the income. Which means it pays the coupon and the periodic inflation adjustment. I think. If so then wouldn’t you have effectively a floating rate income stream that is inflation indexed ?

I owned this type of product for a while. Then there was big inflation which I expected to mean this was my moment.

Instead, rates moved and I discovered that TIPS bond fund is still a bond fund with all the traits that made me stop using them. Rates rose, I got crushed and didn’t have the guarantee of a specific return of principle on a schedule.

I will only buy individual TIPS now.

YMMV.