Let’s take a quick look at the pricing of this week’s TIPS auction

Some readers are reporting discrepancies. Any ideas?

By David Enna, Tipswatch.com

After I posted my article on Thursday’s reopening auction of CUSIP 91282CFR7, creating a 4-year, 10-month TIPS, several readers reported discrepancies in the pricing being reported by their brokers. In some cases, the broker may have charged a commission or fee. But that is baffling, because many brokers claim to execute Treasury auction purchases with zero commissions or fees for online orders.

This pricing ought to be clear-cut. It should exactly match the prices reported by the U.S. Treasury after the auction closed at 1 p.m. Thursday. Here is the Treasury’s summary:

And here is my estimation of the investment’s cost based on that Treasury data:

I can understand that different brokers will have different ways of detailing the cost. For example, Vanguard reports the unadjusted cost, the adjusted principal, and then the result of this simple calculation:

Unadjusted cost (as a factor like 1.00555894) x adjusted principal = investment cost

My only experience is at Vanguard for brokerage purchases at Treasury auctions, and their reporting system seems quite clear-cut. Other brokers may list different factors, but the resulting investment cost should be the same. For Thursday’s auction, the adjusted cost was $101.135096 for $100 of value. On top of that cost was accrued interest of $3.41240 per $1,000 of value.

I am not sure why some readers seeing differing costs, while others are seeing costs that match the Treasury’s reporting. But I suspect brokers are adding some sort of fee to the transaction. One reader has reported that E-Trade admitted overcharging him. But others at TD Ameritrade are also reporting issues.

I am posting this to give readers a chance to double-check broker transactions for this TIPS. What prices were you seeing on your transaction? Can anyone offer a logical explanation for our group for these discrepancies?

Anyway, have a wonderful holiday weekend.

* * *

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.


About Tipswatch

Author of Tipswatch.com blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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28 Responses to Let’s take a quick look at the pricing of this week’s TIPS auction

  1. Storrs Hoen says:

    David, Thanks so much for your post. The eTrade numbers for me were incorrect in the latest auction. Just today (12/27/22), eTrade has issued changes to that TIPS purchase. These correct their errors and the numbers now agree with your table above. This error has prompted me to look at the October and November auctions through eTrade. While the October auction looks correct, the November auction seems to overcharge the investor. They have started a ticket to resolve. THANKS!

  2. Next 10-year TIPS auction is on January 19th. Since BOJ, a big buyer of US treas,uries, flexed the range of their 10-year goverment bonds up from 0-0.25% to 0.25-0.50%, longer end of our yield curve has moved up. Also, BOJ is expected to have a new head, in June or so, who will need to be more hawkish because of Japan’s debt levels, even if most of its debt is held by the Japanese themselves. As of this weekend, unfortunately, China is showing signs of significant increase in Covid cases which will, most likely, be interpreted by the markets as increased risks to supply chains and raising risks for prolonged inflation. In short, 10-year TIPS could become more interesting…thoughts?

    • Tipswatch says:

      Over the last year, TIPS yields and values have been in constant flux and that will probably continue into 2023. If real yields for the 10-year hold in the 1.55% range, I’ll be a buyer in January.

  3. My transactions price, for the recently auctioned 5 year TIPS, at Schwab, Fidelity, and Vanguard matched the amounts in David’s post.

  4. Wayne Muchmore says:

    Hi David,
    Your commentaries on tips investing are invaluable.
    I hope you can help with this problem: In order to calculate my 2023 IRA required minimum distribution it’s necessary for me to know the market value of my tips investment as of 12/31/22, and I am confused as to how to determine that. Would multiplying the principal value by the WSJ bid price as of December 31 be acceptable if questioned by the IRS, or are there other more approved ways?
    Thank you.

    • Tipswatch says:

      This is a great question, and I’m afraid I don’t know the answer, since I haven’t started taking RMDs. If your TIPS are in a brokerage IRA account, I would think the brokerage is going to report the market value as the value on Dec. 31. You shouldn’t need to do any calculation.

  5. Audrey says:

    Fidelity purchase and I was given the unadjusted price, the interest paid and the total cost which included the adjusted price and interest. All matched your table above. No funny business.

  6. tahoe tom says:

    I’ve been doing UST bond auction purchases (including TIPS) in my IRAs at Schwab for nearly two decades. It has always been super easy and commission-free.

    (I ignore all the “noise,” i.e., price fluctuations, and hold to maturity. The interest and final payments of face value + earnings show up in my account like clockwork.

    For this one, Schwab charged me $5,073.81 for $5,000 TIPS. Seems to match your table exactly.

    I manage all of my own investments, and have been astonished that NONE of my family or friends who pay financial advisors are ever advised to buy-and-hold TIPS. I assume it’s because their advisors get no commission for TIPS bought this way?

    I have heard dozens of times the worn-out line from advisors that “the only way to beat inflation is to invest in stocks.” In contrast, i buy TIPS only when real yield is positive, and here we are today buying TIPS that yield 1.5% over inflation.

    I’m retired, age 62. The money i can’t afford to lose is in TIPS, CDs, and high-yield savings (Ally Bank 3.3% currently for regular savings). The money i can afford to lose is in stocks, metals, and a tiny sprinkle of crypto. It’s that simple, folks. I sleep well at night.

    Most bond funds are for suckers… just look what happened to bond funds this year. I dumped all my bond funds in late 2021 when rates were essentially zero with nowhere for yields to go but up and inflation creeping upward. It was so predictable, really.

    Few things about the markets are predictable, but the collapse suffered by bond funds this year was foreseeable by anyone paying attention to the fundamentals. Any advisor who didn’t get their clients out of bond funds in or before 2022 was either asleep at the wheel or just plain incompetent.

    Great website to educate Everyman about TIPS. Thanks !!

    • Tipswatch says:

      Great posting. I still own total bond fund and a bit of VTIP, because … it’s the long-term plan. But individual TIPS are attractive right now, especially to hold to maturity. It’s good to have rock-solid safety in your portfolio.

    • Michael says:

      As a just retired fee-only financial advisor, I have to push back about the “asleep at the wheel or just plain incompetent” comment. I would *never* advise clients to market time interest rates (or stocks for that matter), which is essentially what someone is doing when unloading bond funds at a specific time. As to whether the rise in interest rates were “foreseeable,” clearly they weren’t–because the moment something is foreseeable, financial markets have already reacted.

      BTW, I say this as someone that personally purchased this TIPs reopening for many of the the reasons that Tipswatch has pointed out. (And Tipswatch, I agree with tahoe tom that this is a *fantastic* website.) But we also won’t know for another 4 years and 10 months if this TIPs purchase will outdo money invested in treasury or TIPs bond funds. It certainly looks like a quite reasonable investment (locking in a real return of 1.5%!) with everything we know now, but I also lack the ability to know what is “foreseeable” in the financial markets. Owning some individual TIPs (or other treasuries) *and* bond funds can be a very sound investment strategy. (And one that Tipswatch also practices.)

      • Tipswatch says:

        Thanks Michael. I track the performance of matured 5- and 10-year TIPS versus nominal Treasurys on this page: https://tipswatch.com/tips-vs-nominal-treasurys/ … For much of the 2010-to-2021 era, nominals did outperform TIPS because of unexpectedly low inflation. Now TIPS are gaining the upper hand because of unexpectedly high inflation, and that is exactly the reason to own TIPS, as part of a diversified portfolio.

        • Michael says:

          Yep, I’ve seen that page, which I think is a great resource. FWIW, I’m also purchasing a 5-year nominal treasury in the auction that closes tomorrow, so I’ll have my own slow motion experiment to see which performs better in this particular case. (Although it’s not quite an apples-to-apples comparison.) And yes, nominals outperformed TIPs due to unexpectedly low inflation and now it’s the other way around due to unexpectedly high inflation. I think the key part of that sentence is the “unexpectedly” part–we don’t know what’s going to happen in the future, so as you said, diversification is the key.

  7. Ed says:

    As mentioned earlier, my TD Ameritrade account was debited $4059.05 for the purchase of $4k worth of TIPs. That is exactly in line with what David showed in the table.
    However, perhaps people get confused when looking at their “positions”. There, it currently shows $100.25393, which is the CURRENT market value of the TIPs. In my case, that means my positions is NOW worth $4029.57, a $30 drop.

  8. FB says:

    No problems with tips order with fidelity. Thx

  9. RM Field says:

    Purchased this TIPS through Schwab account and the numbers were exactly as expected (and as I learned to calculate them here).

  10. Randy says:

    Shouldn’t your Vanguard example say that the simple calculation is unadjusted cost x inflation index = cost of investment?

    • Tipswatch says:

      It appears that Vanguard lists the unadjusted cost and applies that as a multiplier (as a factor like 1.00555894) to accrued principal. But the way you describe works perfectly well, it is just the reverse calculation. Your way is simpler.

  11. Lou Petrovsky says:

    Is there a site that explains the terminology used in the Treasury News issued by the Treasury Dept.’s Bureau of the Fiscal Service? For example, for this latest TIPs auction, it lists four different dates:
    Issue Date…………….. December 30,2022
    Maturity Date ……….. October 15, 2027
    Original Issue Date .. October 31, 2022
    Dated Date …………… October 15, 2022
    From which date is interest earned, and on what semi-annual dates is interest paid?

    • Tipswatch says:

      Interest began being earned on Oct. 15, 2022, and that is why you have to pay for the interest earned up to the settlement date (called issue date here) of Dec. 30. Interest will be paid on April 15 and Oct 15 each year until maturity.

  12. dale says:

    my Schwab ecomfirmation was exactly as you posted.

  13. Roy Ledden says:

    Does it matter when the bonds were purchased? My trade date with Fidelity was 12/19/2022 and the “Limit Price” was 100.703 and the “Inflation Adjusted Limit Price” was 101.151.

    • Tipswatch says:

      If your trade date was actually Dec. 19 that means you bought this TIPS on the secondary market, not at auction. You can confirm this if your settlement date was Dec. 20. The auction was Dec. 22.

      • Roy says:

        Yes, Dec 20 settlement date. I was advised by someone (not you) that an auction based purchase could be made between the Announcement Date and the Auction Date. Then when you advised making the buy on the day before the auction date it appeared to confirm the purchase didn’t have to be on the auction date. I should have taken your advise literally. My bad. Thank you.

    • Tipswatch says:

      You can safely place the order days early. But when searching for a TIPS to purchase, make sure to select “auctions” and not “secondary.” And make sure the date matches the auction date.

  14. petilon says:

    For what it is worth, I purchased on Fidelity and my total cost is in line with the numbers in this blog. Fidelity does not display the yield of the transaction, but I am guessing that if the purchase price is in line with the expected purchase price in this blog, then that means I got 1.504% yield.

    • applebow555 says:

      Another Fidelity user here, also confirming auction purchase amount from Thursday matches the calculation in the blog post above exactly (price 100.5559, total amount $20,295.27, interest $68.25 for 20k).

      Thank you for providing such clear explanations and thoughtful analyses, David!

  15. JP says:

    My transaction price at TD Ameritrade matched the amounts in David’s post.

  16. Steven gilbert says:

    Have a wonderful holiday. Thanks for all your efforts on this great site.

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