TIPS

[ValueMaven]

TIPS finally offer interesting yields.  After offering negative real-yields for the past several years, the 5Yr TIP has a REAL YIELD of 1.13% - the whole real curve is now offering 1%+ even 30yrs out.  The TIP ETF for example is down about -10% YTD, and down $20 from its high earlier in the year.  You are now finally getting some very attractive/cash alternatives at the current prices.  I am not a TIPS expert - so please shoot this thesis down.  

[Spekulatius]

The 20 year duration + TIPS are now at the highest level for quite some time. I think they are interesting  in tax deferred accounts . I bought some 2044 TIPS and LTPZ (15 year duration TIPS ETF) . I think the sweet spot is 15-20 year duration.

 

You can get some inflation adjusted real 2.5-3% yield here.

[dealraker]

44 minutes ago, Spekulatius said:

The 20 year duration + TIPS are now at the highest level for quite some time. I think they are interesting  in tax deferred accounts . I bought some 2044 TIPS and LTPZ (15 year duration TIPS ETF) . I think the sweet spot is 15-20 year duration.

 

You can get some inflation adjusted real 2.5-3% yield here.

Thanks for posting this.

[thepupil]

59 minutes ago, Spekulatius said:

The 20 year duration + TIPS are now at the highest level for quite some time. I think they are interesting  in tax deferred accounts . I bought some 2044 TIPS and LTPZ (15 year duration TIPS ETF) . I think the sweet spot is 15-20 year duration.

 

You can get some inflation adjusted real 2.5-3% yield here.

 

agreed. my 401k (about 10% of my portfolio) is entirely TIPS and has been. And yesterday I supplemented w/ some LTPZ calls to increase the duration of my exposure because the TIPs fund in my 401k is only a duration / maturity of 6 to 7 which is too short for my taste (though has been nice in terms of not drawing down as reals have gapped out over my ownership). 

 

added to some individual TIPs for my parents....I also think TIPs relative to some blue chip REITs (enjoying the rare bit of outperformance) are quite attractive....your WELL's data center stocks that are yielding 1.2% (WELL) or 2.4% (DLR) look pretty dumb to me when you can get govvy guaranteed 3% real. 

 

At 2-4% CPI and constant real rates, long term TIPs are paying you 5-7% with no credit risk...that's nice carry and you get like 20% upside if reals drop 1%....let's say you exit @ 2% real in 5 years and inflation avg's 3%...that's 6%/yr of carry and 4-5% / year of capital appreciation for a double digit IRR on government guaranteed instrument...if reals go to 4 over same time, you're breaking even (roughly).

 

one weird thing about TIPS is you'd think they'd be pretty different than bonds, but empirically, they actually end up being almost the same. Even over last 5 years (which has seen some decently high CPI), TIPS have "only" done bonds + 70 bps / year (0.4%/yr vs -0.4%)...over that 5 years 10 yr real went from -1.1% to +2.4%....so someone who bought a TIPS mutual fund 5 years ago didn't lose nominal $$$ despite a 350 bp increase in real rates over the hold period. now you're starting from a much better place.

 

they're pretty much bonds outside of extremes....a little more return......a little more protection from inflation tail...at expense of not as much punch in deflation a little less liquid (sometimes matters in extreme market moves)