"Be careful what you wish for, lest it come true." - Edgar Allen Poe
I have TIP in my IRA and I plan to keep it there for many, many years.
So what should I wish the price of TIP to do? The easy answer would be that I would wish for the price to go up. Right?
I want it to go down. It will hurt me in the short-term, but I'll more than make it up with higher real yields going forward.
The worst possible thing would be for TIP to rise to the point that the real yields become 0%. From that point on all it would do is track inflation and it could never grow in real terms. Low real yields are not a saver's friend.
I own individual TIPS and I hold them until maturity. I always want higher real yields (and lower prices). I never want lower real yields. I have some maturing next year and I'd like to be able to lock in a higher interest rate then. All I would get from rooting for lower real yields would be bragging rights and the ability to earn less interest in the future. I'll pass on that.
If you are a long-term TIP investor and want to own TIP into the distant future, then cheer up. It might not feel like it, but today's drop in price was a good thing.
If you are a short-term TIP investor then I can't really help you. You lost money today and no good came of it. Sorry.
If you are a long-term TIP holder such as myself, then you may find comfort in what I said back in April.
"If you are a long-term TIP investor and want to own TIP into the distant future, then cheer up. It might not feel like it, but today's drop in price was a good thing."
$1.24 billion was bid noncompetitively on today's 13-week T-Bills. They got 0.152% that isn't inflation protected.
$343 million was bid noncompetitively on today's 5-year TIPS. I got 0.55% that is inflation protected.
All things considered, I could be doing worse.
We haven't seen decent T-Bill rates since 2008.
The US Treasury shows a 0.62% rate as of today. There's $178 billion in debt being offered next week. Rates have at least a chance of inching higher.
A 5-Year TIPS auction should be announced tomorrow.
As much as it pains me to do this, I'll be participating in the auction. I won't be buying much since the yield will be so pathetic, but I will be buying some.
My cash flow situation is weakest 5 years from now and I need at least something to help fill that gap. 22% of my TIPS mature in January 2016. (I backed up the truck on a 2% 10-Year TIPS in 2006.)
It didn't help that I bought the 30-Year TIPS two months ago either. It was not part of my long-term plan. I could not resist that 2.2% yield. In hindsight, I'm not exactly complaining though. :)
There just aren't a lot of safe choices for those who need the money in 5 years.
Just wish inflationary expectations subside, so I can get better yields in the future..above 2% would be great...2.5% real would be awesome for 10 yr. I think it hovered around that during early/mid 2009. Oh well...I wish I knew what I know now. I didn't own any TIPS then.
Well said as always...
I could get into some 10 yr at 1.7% real today in auction because of the drop. I am not complaining even though my recently purchased 30 yr are now below what I bought them for.
"I am not complaining even though my recently purchased 30 yr are now below what I bought them for."
I also bought the 30 year TIPS. We've actually done okay.
We paid $97.667212 per $100 and got a 2.229% rate. Bloomberg shows our TIPS bond with a current price of $97 23/32 ($97.72) a 2.23% rate.