A few moments ago, I checked to see if my broker was allowing orders to placed with it for the treasury auction on Monday, July 6, 2009 for the 10 year TIP (maturity 7/15/2019). For those unfamiliar with this process at Fidelity, you would click the tab "Investment Products", then "Income Products", then "Bonds", then under U.S. Treasury click "Tips (Auction)," and the only item shown is the ten year TIP auction for Monday. 1 bond equals $1,000. I placed an order for 2 bonds in my Roth. I could wait until Monday morning to do this, but there is a cut off time and I might forget.
This is the first time that I have bought a security at a treasury auction from a brokerage account. It is my understanding that no commission is charged by Fidelity. The price is set by the competitive bids received by the treasury for this security. Institutional - How Treasury Auctions Work When I buy a treasury security via Treasury Direct, I submit a non-competitive tender which simply means my order will be filled at the price set by the competitive auction.
I previously discussed the reasons for buying this security directly from the Treasury at auction rather than via a mutual fund or ETF, and why I would put it in a retirement account.
Added 7/3/09: As of 7/2, the nominal yield on the non inflation protected 10 year treasury is about 3.5%. The yield on the 10 year TIP is around 1.85% Treasury Inflation-Protected Securities (TIPS) - Markets Data Center - WSJ.com (only have price for 1/2019 issue) While I have not bought a TIP at auction until now, I would expect the coupon yield for the 10 year TIP auction to be around 1.85% based on the prices quoted in the WSJ link above. If that is close to the coupon yield on the TIP Monday, then the breakeven will be about 1.65%, meaning that I will need more than an average 1.65% CPI over the next ten years to breakeven compared to just buying the 10 year non-inflation protected security Monday.
In a post dated June 3, 2009, I noted that the breakeven was over 2%. Morning Notes 6/3/2009: More on TIP Pricing/Sold PST/Record Spreads in 2 and 10 Year Treasuries/Australia GDP
I noted a 1.93% breakeven in a post dated 6/13/2009 after a successful 30 year auction: Saturday Observations 6 13 09: Barron's Mid Year Roundtable & Perpetual Pessimism/Inflation Risk and the TIP
I noted it to be 1.76% in a post dated 6/18/2009: Item # 2Bought 150 TC PKM/ SLM News/TIP Sinking and Break-Even Staring to Narrow Again/Payment of a Deferred Dividend-Who Has the Right to Receive It?
It was 1.9% as noted in a post from 6/21/2009: Inflation Forecasts: Can We Really Predict the Future?
As a prospective TIP purchaser worried about inflation over the next 10 years, I would prefer being a buyer at 1.65% breakeven rather than 2%, or a 0% breakeven compared to a 1.65%, the lower the better.
And when I last bought the ETF TIP, actually next to the last time, the breakeven was near zero. TREASURY INFLATION PROTECTED BONDS (TIP)
No comments:
Post a Comment