Here's the transaction record:
Symbol 91282CCA7
Symbol description UNITED STATES TREAS NTS SER X-2026 0.12500% 04/15/2026
Shares +50,000.000
Price 95.835
Amount -$56,076.95
Interest $27.37
Settlement date Feb-29-2024
Here's my take. You didn't mention your yield, but we can calculate that with the information provided using the spreadsheet YIELD function, and it is 2.140%.However, it seems both of you are telling me that if net inflation from my purchase date until maturity is greater than or equal to zero, then I will get back at least my initial nominal cost upon redemption at maturity. I am admittedly seeking reassurance that I understand at least that much about TIPS, before increasing my investment.
This is the real yield, which means that you'll earn that on top of the reference CPI change between settlement and maturity. This isn't exactly inflation between those two dates, because actual CPI lags reference CPI (e.g., March 1, 2024 ref CPI is determined by December 2023 CPI), but as a first approximation you can just think of it as inflation as measured by the CPI.
So, referencing the underlined part of your statements, if net change in ref CPI between settlement and maturity is 0%, you'll earn 2.14% nominal annualized; i.e., you'll receive more than what you paid.
This is because you paid 95.835 unadjusted for inflation, and you'll receive 100 unadjusted at maturity. The change in price plus the 0.125% coupon is what gets you to 2.14% real.
Perhaps more importantly, net deflation over a two-year period hasn't happened since the early 1930s; here's a chart of year over year % change in the CPI since 1914:
Of course you already understand that if we were to get an extended period of deflation, things would cost less so your purchasing power still would be preserved. So based on history it's unlikely to happen, but if it does, you'll still be OK.
Typically most of us don't buy TIPS with a horse race between them and nominal Treasuries in mind--we buy them to deliver a known amount of real income on certain dates (coupons and principal at maturity). If you do want to do a bit of horse racing, buy some of each that mature on the same date, and see how it works out. I wouldn't go out much further than two years with nominals due to the unexpected inflation risk, and two years isn't too long to wait to see how it works out. Of course that won't tell you much--just whether or not inflation was higher or lower than the breakeven inflation rate when you bought them.
Statistics: Posted by Kevin M — Mon Jul 01, 2024 9:44 pm