Tempting short-term investment: TIPS maturing April 15, 2013

Reader Joe pointed out that current pricing on the TIPS maturing April 15, 2013, has moved to a positive yield, while almost the entire TIPS ladder is negative. At this point, it is substantially positive:

short

Tempting, isn’t it? This TIPS has a coupon rate of 0.625% and is selling at a discount, resulting in a yield of 0.739%. That’s attractive, but the TIPS will mature in 4 1/2 months, so it’s definitely a short-term investment.

There’s a thread discussing this issue in the Bogleheads forums, dating back to June but with posts continuing through this week. Experts there agree it is an intriguing investment in theory, but it reality will generate very little income in the short remaining time period, less than 0.2% on the money invested. Still, that is better than a six-month Treasury (0.13%) and even better than a one-year (0.18%).

Why the pricing anomaly? With oil and gas prices declining, we are currently in an inflation downswing, and the ‘fiscal cliff’ raises a specter of deflation. TIPS are inflation protection, and there is little chance of much inflation at all before April 2013. So there is no ‘inflation premium’ on this issue. In fact, a couple months of deflation could nearly wipe out its positive return.

There is little risk in this investment, though, so it could be interesting for someone parking short-term cash, which is going to earn near-zero anyway.

Advertisements
This entry was posted in Investing in TIPS. Bookmark the permalink.

4 Responses to Tempting short-term investment: TIPS maturing April 15, 2013

  1. Ed says:

    Online savings account at Barclays pays 1% per year, giving about 0.35% now to Apr 15. No minimum $. FDIC insured.

  2. tipswatch says:

    Great point, Ed, although the fine print on that Barclay’s account says: ‘APY may change after account is opened. Fees could reduce earnings on the account. Advertised APY is valid as of 09/20/2012, and subject to change daily without notice.’ Barclay’s 1-year CD pays 0.90%, almost the same.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s