Treasury Inflation-Protected Securities (TIPS): the 5-Year TIPS recent highs, should you buy at the upcoming auction or on the secondary market & are we planning on buying any? Watch on & find out as we talk about all of this & more today!
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Will TIPS Yields Go Higher | Should I Buy TIPS (Treasury Inflation Protected Securities 2023)
Treasury Inflation Protected Securities (TIPS) are government bonds that are specifically designed to protect investors against inflation. This means that as inflation rises, the value of TIPS increases, ensuring that investors receive a fair return on their investment.
Over the past few months, TIPS yields have been on the rise, prompting many investors to consider whether now is the right time to buy TIPS. With inflation rates increasing and the Federal Reserve signaling a potential interest rate hike, the question of whether TIPS yields will go higher is on many investors’ minds.
There are several factors to consider when determining whether to buy TIPS in 2023. Firstly, it’s important to understand the relationship between TIPS yields and inflation. When inflation rises, TIPS yields generally increase as well. This is because TIPS are designed to provide a real return above inflation, so as inflation goes up, so too should TIPS yields.
Another factor to consider is the potential for an interest rate hike by the Federal Reserve. Historically, when the Federal Reserve raises interest rates, TIPS yields also tend to rise. This is because higher interest rates can lead to higher inflation expectations, which in turn drives up the value of TIPS.
Additionally, geopolitical events and economic conditions can also impact TIPS yields. Uncertainty in the global economy or unexpected inflationary pressures can cause TIPS yields to increase.
So, should investors buy TIPS in 2023? The answer to this question depends on several factors, including their investment goals, risk tolerance, and outlook on inflation and interest rates.
For investors who are concerned about rising inflation and want to protect their purchasing power, TIPS may be a good investment. By purchasing TIPS, investors can ensure that their returns will keep pace with inflation, providing a hedge against rising prices.
However, it’s also important to consider the potential downsides of investing in TIPS. When interest rates rise, the value of existing TIPS can decline, leading to potential losses for investors. Additionally, TIPS are not immune to market fluctuations and can experience volatility, so investors should be prepared for potential price swings.
Ultimately, the decision to buy TIPS in 2023 should be based on a careful analysis of market conditions, economic outlook, and individual investment objectives. It’s important for investors to seek advice from a financial advisor and consider their own risk tolerance before making any investment decisions.
In conclusion, TIPS yields may go higher in 2023, driven by rising inflation, potential interest rate hikes, and economic uncertainty. For investors who are seeking protection against inflation, TIPS may present an attractive investment opportunity. However, it’s important to carefully consider the potential risks and rewards before making any investment decisions.
Thanks for the video. This was great!!
Thank you for this video. Very informative.
This is an interesting question that I've been thinking about lately. I already have a nest of I Bonds. At the latest auction T-Note 5-yr got a high yield of 4.89% guaranteed for duration. And a 5-yr TIPS fixed high yield got a rate of 2.44%. When the Fed brings the inflation to below 2.46% in the coming months the 5-yr T-Note is looking like a better long-term choice.
I may wait until April and apply my anticipated tax refund to my Treasury Direct savings account (C of I) with which i can purchase treasuries as are suitable.
Does the annual tax liability of TIPS argue against holding them in taxable brokerage accounts?
What do you think about BlackRock's new Defined-Maturity TIPS ETFs offering durations from 1 to 10 years? IBIE is the symbol for their 5-year TIPs ETF.
I am collecting and laddering Tbills. I am 80 and just started going into tbills. I opened an account with UFB Direct a high yield savings at 5.25% and am stashing all my coupon dollars in there earning more interest.
so on the fidelity auction page for the 5 year tips the expected coupon is 2.375 and the expected yield is 2.220. Which is the real yield and why are these numbers different?
So the main question is whether to protect yourself against inflation with Tips versus I bonds, right? I think the answer is to get the one with the higher real rate, which right now is tips. They have other advantages such as ability to be purchased in tax advantaged accounts, and the chance of them increasing in value if yields fall.
I'm not a buyer of TIPS currently, but if I were I would buy in the secondary market to lower the duration I would hold the TIPS. For now, I'm laddered in 4-week T-Bills, and 3-month CD's. In fact, I think a pivot to 1 yr T-bills will be my first move when I feel we're near a peak on interest rates and add 2 and 5 yr T-NTS which are starting to pay 5%, and will go higher in 2024, If T-NTS get close to 6% I'll purchase more and see where TIPS are @ b/c I'm in the camp of higher inflation rates for the foreseeable future.
I invested in TIPS through SCHP over the last several years, mostly with prices in the low to mid 60's. With prices around 50 now, I feel like it's been a bad investment. Will it ever get back to my purchase price range?
Timely topic as I've started buying TIPS on the secondary market. Mainly because I don't want to commit to 5 years or longer. So buying TIPS closer to maturity than 5 years. Even purchased some less than a year from maturity. The discounted prices seem attractive to me, and I don't have to guess what inflation will do years, and years in advance.
Consider a scenario, inflation cools off in 2 years and deflation kicks-in after that, what will happen to TIPS for 3 more years? It will be loss of capital on TIPS investment?
Thank you for sharing. Good video.
Inflation will be sticking around as long as the government keeps overspending….
I’m thinking inflation will increase. I don’t buy the current inflation at 3.2%. Seems higher to me.
I am going to get my feet wet with a small position and I've already put my order in for the upcoming auction. As a recent retiree, inflation is one of my biggest risks. As a hedge against inflation, I've got shares in a gold ETF (GLD), I-bonds, and soon TIPS.
Would it be true to state 2.2% fixed +3.6% inflation equals the interest payment semi annually? I.E. 5.8% interest payment. One therefore needs to balance expectations of how fixed rates influence inflation or vice versa.
We're buyers. Gonna grab 10k of the 5 and 10 more of the 10 next month. We're just under 60 and semi retired. They'll be nice to have. I believe there will be a change in leadership next yr and with the house in disarray now, locking in makes sense. No way they can keep funding at these rates. Carnage is coming and rates will be dropping. IMO
Happy auctioning
What I would like to see is an actual 6-month paper trail on a TIPS bond showing both the fixed yield and the inflation yield returns along with the corresponding real CPI value. From what I can tell, it seems the inflation component grossly underestimates the real CPI value. (And the bond's inflation value component, as I understand it, updates every 6 months, so it should be relatively close to the actual CPI…but it clearly isn't.)
Very timely! Thank you.
I'm sticking with 1-year T. Bills for now. 5.4% risk free is good enough. May take the plunge on longer maturities later.
I can't foretell the future but it is entirely possible that rates go much higher.
Great video as always. I’ll keep buying and holding a mix of T-Bills, T-Notes, I-Bonds, and TIPS in the fixed income part of my portfolio. Too hard to predict monetary/fiscal policies and inflation.
FYI iShares just introduced 10 new TIPS ETFs that mature each year from 2024-2033. Just an option for people that don’t want to buy individual bonds.
Can you walk through an example of what happens to a 2.2% TIPS if 3% deflation happens? Can investors lose principal? If so, what kind of scenario would make that happen?
Have been adding gradually into longer term Notes & Bonds. Can't rule out the possibility for either outcomes. Rates go higher and so do yields. I'm alright with this outcome as even if I'm wrong, they'll still pay me interest every 6 months. But disinflation could also occur or the proverbial 'Black Swan' that drives investors into bonds or other safe havens suddenly. In that situation, I'd be pretty bummed about yields dropping significantly lower having missed out trying to time the top. The Fed pausing was my signal to start averaging into longer term.
VT247
I am holding off until the next auction date on Dec 21st., we might get a big surprise on CPI data in the next few months.
I spend money like a bunch of Members of Congress.
You've been right so far to stay short duration in the bond market. Yields have indeed kept increasing, in spite of the incorrect common expectations that a Fed pivot and yield increases were imminent.
Torn on this one. I think inflation gonna remain sticky, or temporarily correct and then give 2nd or 3rd wave. I'm relatively young but it's tempting to snag 10yr or 30yr TIPs (especially via brokerage if can trade later in secondary market if they appreciate and I want a different investment vehicle) — I think yields are stagnating or about to retreat.. but this is just my humble opinion and prediction