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@Crash. I have been favoring only 5-yr TIPS, not TIPS funds (ST or IT/LT). The idea is to capture CPI approximately, see chart below - I don't know why the StockCharts hasn't updated CPI for January in comparison charts (it has in separate CPI chart). And I am thinking that slowing inflation will catch up with individual TIPS too, just as it has with I-Bonds. I do have 5-yr TIPS from last year, but I am unclear about new purchase(s).
For me, m-mkt funds, T-Bills, 5-yr TIPS, SVs, I-Bonds are just the cash-side of fixed-income. I have plenty of equity exposure for risk.
I trust Devo understands this investment in TIPs, but even explained to me I can't say I really understand why they are positioned to move up. I can't invest in something I don't understand. Inflation continued to rise and TIPS continued to fall in 2022. If I look today, the ETF TIP is down ~13% in the past year, treading water YTD.
Schwab gives this analysis:
Trend Analysis TIP appears to be consolidating within a longer term downtrend. Shares are presently below the 200-day moving average, which is falling along with the 10-day moving average. However, the Average Directional Index, or ADX, is below 20, indicating that shares have exhibited sideways movement recently. Comparative Relative Strength analysis shows that this issue is lagging the S&P 500. As of 11:28 AM ET Wednesday, 02/15/2023
Momentum Momentum for TIP is strongly bearish. The 14-period Slow Stochastic oscillator is below 20, the level which many analysts call oversold. This means that investors have been actively selling shares and driving the price lower. As of 11:28 AM ET Wednesday, 02/15/2023
I'm pretty sure their day is coming as Devo says. I believe his analysis and investment ability but can't say I fully understand it. Bottom line, for me, if I don't understand their movement I can't invest.
@yogibearbull ; Thank you. I purchased a 6 month T-Bill on Monday. My "thinking" , when rates go down to capture a little more interest at that time, with a note paying more. Middling , I guess I'd call it. Maybe a ladder ? Have a good day, Derf
The bull case for TIPS goes something like this. Max real rate ranges have been,
5-Yr TIPS -1.87% to +4.24%, current +1.49% 10-Yr TIPS -1.10% to +3.06%, current +1.41%
So, IF one assumes that in the current environment the real rates are peaking too, and IF at some future time they move to new lows (and negative), then TIPS would have a giant rally. But note 2 "IFs".
As I said before, I am not speculating in this area. But I can also see @Devo's point after TIPS funds have been trashed along with regular bond funds (and those have bounced more).
Notice that the treasury yield curve has changed since summer 2022:
1. The inverted curve started to flatten as 1 yr, 2 yr and 10 yr yields moving upward in the last several weeks. 2. As of yesterday, the 6 mo and one year yields reached 4.98% and 4.99%, respectively. @yogibb mentioned that is the sweet spot. 3. 10 year yield is moving upward and that is negatively impacting other bond prices. My core bond funds have moved down since the beginning of the year. Yields are over 4% now so I will dollar-cost-average back to my target %.
@MikeM, Please note that individual TIPs bond is not the same as TIPs funds/ETFs. TIPs fund/ETF bond price is volatile and 2022 was a down year YTD even when inflation is high. In order to take advantage of the CPI, one needs to buy individual TIPs of 5 yr, 10 yr or 20 yr, and hold them to maturity. More explanations from David Enna. https://tipswatch.com/tips-in-depth/
Thanks @Sven. I had to chuckle a little when I read this. The first sentence of the article, "Treasury Inflation-Protected Securities are a complicated investment...". And the last paragraph states, "I know that TIPS are an esoteric and confusing investment." Sums it up for me
But seriously, I do understand holding the actual bond to maturity is a much simpler way to understand the return on investment than say an ETF or mutual fund. But a question, will the holder of an ETF or MF expect the same return benefit, just a bit "esoteric" understanding how they got that return?
@MikeM, Quite honestly I don’t fully understand how to calculate the expected return from MF/ETF. So I hesitate to invest much in TIPs and limit myself to T bills and CDs at auction.
Now I am looking into individual agency bonds to get a bit higher yield than T bills. My goal is to get 5% yield annual without trading off the principal unlike TIPS funds. Like your don’t want to invest much in anything unless I understand how they work.
Scary, all of this. Are not TIPS (and TIPS funds/ETFs) in the end, "Inflation Protection Securities?" Full of gov't paper designed to DO that? To protect against inflation? Inflation is showing itself to be sticky, difficult to push downward to 2%. With elevated inflation currently, what could go wrong? (Like putting a match to a pot of hydrogen, eh?). I'm an owner in a small way of SCHP. A Schwab product. TIPS.
Someone once mentioned that tips ARE bonds and like all bonds when rates go up bonds go down and when rates go down bonds go up. Long tips go up/down more than short tips just like long/short bonds. I don't know much about Tips but I think you want them when inflation is going up but rates are steady or going down.
@gman57, thanks. That may be a nice simplistic way of explaining their behavior in 2022. TIP ETFs and MFs lost money when rates increased like every other bond. The term inflation protection is misleading to me and probably every other investor layman... but of course they lost money.
So, IF one assumes that in the current environment the real rates are peaking too, and IF at some future time they move to new lows (and negative), then TIPS would have a giant rally. But note 2 "IFs".
I've actually learned a lot by this string. I've learned the term "inflation protection", at least in the form of a TIP ETF or MF, is kind of an oxymoron. If the FED is fighting inflation by increasing rates, this type bond ETF, like any other bond ETF, will not do well. It will not protect you while inflation is rising as the term "inflation protection" might suggest.
In any case, the 2 IFs yogie mentions are the key. Investments are always risky by "IFs", but now I do think that these IFs are more on the probable side of the bet making TIPS a good risk going forward. Not sure if they pay off in 2023 or 2024, but they should when rates start to fall.
Wholesale inflation PPI came in hotter than expected. See that "wrong way" tick? In general, what happens for wholesale inflation eventually trickles down to retail inflation CPI (and Fed's favorite PCE). On this unexpected bad news, futures turned negative. PPI Index https://fred.stlouisfed.org/graph/?g=107vs PPI Annual Changes https://fred.stlouisfed.org/graph/?g=107wb
Comments
TIPS use monthly CPI changes with 2-mo lag. How is that looking now?
I am definitely skipping I-Bonds, but I am still evaluating 5-yr TIPS.
For me, m-mkt funds, T-Bills, 5-yr TIPS, SVs, I-Bonds are just the cash-side of fixed-income. I have plenty of equity exposure for risk.
https://stockcharts.com/h-perf/ui?s=VTIP&compare=TIP,SCHP,$$CPI&id=p24810227377
https://stockcharts.com/h-sc/ui?s=$$CPI&p=D&b=5&g=0&id=p17805591940
Schwab gives this analysis: I'm pretty sure their day is coming as Devo says. I believe his analysis and investment ability but can't say I fully understand it. Bottom line, for me, if I don't understand their movement I can't invest.
Have a good day, Derf
5-Yr TIPS -1.87% to +4.24%, current +1.49%
10-Yr TIPS -1.10% to +3.06%, current +1.41%
So, IF one assumes that in the current environment the real rates are peaking too, and IF at some future time they move to new lows (and negative), then TIPS would have a giant rally. But note 2 "IFs".
As I said before, I am not speculating in this area. But I can also see @Devo's point after TIPS funds have been trashed along with regular bond funds (and those have bounced more).
https://fred.stlouisfed.org/graph/?g=105kz
1. The inverted curve started to flatten as 1 yr, 2 yr and 10 yr yields moving upward in the last several weeks.
2. As of yesterday, the 6 mo and one year yields reached 4.98% and 4.99%, respectively. @yogibb mentioned that is the sweet spot.
3. 10 year yield is moving upward and that is negatively impacting other bond prices. My core bond funds have moved down since the beginning of the year. Yields are over 4% now so I will dollar-cost-average back to my target %.
@MikeM, Please note that individual TIPs bond is not the same as TIPs funds/ETFs. TIPs fund/ETF bond price is volatile and 2022 was a down year YTD even when inflation is high. In order to take advantage of the CPI, one needs to buy individual TIPs of 5 yr, 10 yr or 20 yr, and hold them to maturity. More explanations from David Enna.
https://tipswatch.com/tips-in-depth/
But seriously, I do understand holding the actual bond to maturity is a much simpler way to understand the return on investment than say an ETF or mutual fund. But a question, will the holder of an ETF or MF expect the same return benefit, just a bit "esoteric" understanding how they got that return?
Now I am looking into individual agency bonds to get a bit higher yield than T bills. My goal is to get 5% yield annual without trading off the principal unlike TIPS funds. Like your don’t want to invest much in anything unless I understand how they work.
In any case, the 2 IFs yogie mentions are the key. Investments are always risky by "IFs", but now I do think that these IFs are more on the probable side of the bet making TIPS a good risk going forward. Not sure if they pay off in 2023 or 2024, but they should when rates start to fall.
Thanks all!
PPI Index https://fred.stlouisfed.org/graph/?g=107vs
PPI Annual Changes https://fred.stlouisfed.org/graph/?g=107wb