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Best TIPS ETFs for Qtr 3 2021 (Article)

edited May 31 in Other Investing
I thought the difference in yield between the 10 year TIPS and regular 10 year Treasury Bonds quite astonishing,

“The 10-year TIPS spread as of May 18, 2021 is 2.52%. This means that 10-year TIPS have a yield 2.52% lower than the 10-year Treasury, so inflation would need to average 2.52% per year for the two to have the same returns.”

Article

Here’s a good related Article from Morningstar: TIPS Funds - Go Short or Go Long?

Comments

  • The spread has been slightly higher within the past decade (2.57% in early Oct 2012 and in mid March 2013), and hasn't dropped below 1¼% since then. The non-inflation-adjusted portion of the TIPS yield in that time frame was similar to today's -0.8%. So while we're close to extreme values, this isn't something we haven't seen before.

    Given that negative yield, if one is willing to forgo short term liquidity, ISTM I bonds would be the better investment. They are never sold with a fixed rate under 0%. After a year, you can redeem and forfeit 90 days interest. After five years, you can redeem for the full value.

    They're more like CDs than bonds - aside from forfeiture of interest, you won't lose money. That differs from bonds where early "redemption" means selling on the secondary market where you could lose principal. Like CDs, you can ladder I-bonds to generate an income stream. That's something you almost have to do because you're limited to $10K/year/SSN and $5K/year/tax return (joint or individual).

    Here's the Fed graph from the Investopedia piece, with the 10 year Treasury yield curve and the 10 year TIPS yield curve overlayed. The original curve (the spread) is just the difference (height) between the two overlaid curves.

    https://fred.stlouisfed.org/graph/fredgraph.png?g=EmIE
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