What’s the Bloomberg 10-yr Inflation Breakeven index?
Interesting strategy but ultimately seems too complicated to implement for me since I don’t feel like constantly shorting nominal treasury bonds of matching durations.
It also sounds a bit too good to be true. If it were essentially an improved inflation hedge for your bond allocation using long TIPS and short nominal treasuries, why hasn’t anyone made an ETF for it that could be easily benchmarked (and backtested)? And how would these perform in a deflationary recession?
The coupon on the upcoming 2055 30-YR TIPS new issue is going to be 2.375% with expected yield of 2.366%.
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On the secondary market, treasuries with a ~25 year maturity have YTMs over 5%, TIPS are available as high as 2.64%. About the same place we were at 6 months ago.
Anyone see a reason to lock in now? I’m thinking about adding some of my 4.3% savings reserves - even short term I see it far more likely prices go up (pushing yields down) which would only compound gains if I do need the cash at some point.
With a 20+ year maturity for these TIPS, a few years difference doesnt really matter to me. I can sell the TIPS I have now at a 2.45% YTM, and buy a different TIPS, with a few years longer maturity, with a 2.60% YTM. Is there any reason not to make the swap, that I am not seeing?
I don’t see any aside like you said pushing the maturity date for the new TIPS. Only risk I can see is in fixed rate treasuries. If debt keeps getting worse and inflation is the way to “fix” it, then those 5% yields will be trouble. But no such downside risk I think in the short term for 2.6% TIPS.
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Why are long term Treasury and TIPS yields going up? CDs rates are down, and savings rates are primed for a cut as soon as the Fed takes action.
Isnt there good prospects for additional short term bonus return, when these 5+% Treasury (and 2.7% TIPS) yields fall pushing the bond prices higher?
IMO expectations for rising inflation (not withstanding growth slowdown).
And they keep going up. Even the yield for TIPS, that already include a separate supplimental return based on inflation.