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Author: OxBeaux Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35345  
Subject: 5 year TIPS Date: 4/21/2006 10:00 AM
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At Fidelity the new 5 year TIPS are shown with an expected yield of 2.150.

http://personal.fidelity.com/research/fixedincome/fixedincome_frame.shtml?bar=c

Am I correct in assuming that the coupon will be 2.0 with the discount bringing the yield up to 2.150? Or is the coupon expected to be 2.15?

Thanks,

OxBeaux
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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16368 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 10:34 AM
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I don't believe they set the coupon on the announcement date—at least I don't see anything listed. Coupons are in 1/8 increments (the US government can't go decimal for fear of being accused oc communism). So, I'd expect a coupon of 2.125% or 2.25%. The actual yield won't be known until the auction (the 24th???).

If you're planning to bid, make sure you have enough money to cover a premium, although my experience was that they didn't take the money out until the issue date, a few days later, so I could have put the exact amount in the account, instead of giving myself a margin then walking the money back out after the auction. Probably cost me two bits in interest.

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Author: galagan Big gold star, 5000 posts CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16369 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 10:50 AM
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Loki's right - for new issues, they don't set the coupon until the auction, then they round down to the nearest 1/8 percentage point to make sure they never sell at a premium. So if auction yield is 2.11, they will make it 2 percent coupon, but if it's 2.14, it'll be 2 1/8.

Only time they don't follow that rule is if they reopen an old issue, like the 10-year a week or so ago. Then they keep the same coupon and sell at a premium or discount as market conditions warrant.

dan

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16371 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 11:50 AM
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"Then they round down to the nearest 1/8 percentage point to make sure they never sell at a premium."

Interesting tidbit. Probably worth adding to FAQs. I also need to add what I learned about issue date and when you see stuff in accounts and money gets taken out. I wrote the Treasury about the registrant issue (the real question is whether you can do joint ownership or at least designate a beneficiary with T-Direct), plus I want to add links to the TIPS CPI-U adjustment, then I'll repost an edited version of that part.

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Author: OxBeaux Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16372 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 12:11 PM
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So, I'd expect a coupon of 2.125% or 2.25%. The actual yield won't be known until the auction (the 24th???).

Thanks Lokicious.

I talked to a Fidelity fixed income guy and he said that the coupon is expected to be 2 1/8(according to Bloomberg). There will be some accrued interest since the bond is dated 4/15 and the auction date is 4/25 so each bond will cost a little over $1000.

OxBeaux

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16373 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 1:54 PM
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"I talked to a Fidelity fixed income guy and he said that the coupon is expected to be 2 1/8(according to Bloomberg). There will be some accrued interest since the bond is dated 4/15 and the auction date is 4/25 so each bond will cost a little over $1000."

Of course, Bloomberg is guessing, but it certainly doesn't hurt to have a little extra in the account. I know the money didn't get taken from my account for last week's auction until the issue date (Monday this week), by which time I knew the exact price, but I was using T-Direct, and I believe someone else, who used Fidelity, had the money taken out on the auction day.


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Author: OxBeaux Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16376 of 35345
Subject: Re: 5 year TIPS Date: 4/21/2006 4:45 PM
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I know the money didn't get taken from my account for last week's auction until the issue date (Monday this week), by which time I knew the exact price, but I was using T-Direct, and I believe someone else, who used Fidelity, had the money taken out on the auction day.

I use Fidelity and the purchase for the auction is posted to the account on the day of the auction close date. For the reopening of the 10 year TIPS that closed last Tuesday the purchase was posted to my account on Wednesday and the money was redemmed on the settlement date which was the 17TH.

I will know the cost of the 5 years on the 25th and settle on the 28th.

It is just a matter of book keeping. Also I am purchasing these in an IRA so the money has to be there to place the order. I assume that if this were a taxable account I would have three days to get the money into the account prior to settlement.

I personally find Fidelity very convienient for treasury auctions and of course there is no fee if the order is placed on line

OxBeaux

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Author: DreadPotato Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 16390 of 35345
Subject: Re: 5 year TIPS Date: 4/23/2006 1:18 PM
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Thanks guys for the heads up. This may be as good a time as any to bail out of the tips bond fund with a short term loss and go direct.

gdm

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