Traditional bonds are priced around the objective of getting a return that exceeds expected inflation. If inflation is unexpectedly high, then the real return on nominal bonds is less. TIPS, on the other hand, keep pace with higher inflation, because it triggers a higher nominal return above their underlying real interest rate. Essentially, TIPS provide…

Today, I want to talk about what TIPS can tell us about inflation. Exhibit 1 shows the TIPS yield curve for January 3, 2017. Yields are negative for TIPS maturing prior to 2022, and positive beyond that, although the longest ones do not even reach 1%. The Treasury stopped issuing thirty-year TIPS in the early…

Retirement is expensive. We know this. Most people aren’t adequately prepared for retirement. We also know this. And the situation just keeps getting worse. Medical science just keeps getting better, which means we’re living longer than ever (feels strange to call this a bad thing, but from a financial perspective it makes retirement more expensive), and…

It’s become an article of faith lately that bond yields have to go up – just like they were supposed to last year. Well, the market continues to confound the market timers. Bond yields are actually down. This is a good reminder that the market doesn’t actually care what you think. It’s going to do…

The U.S. began issuing Treasury Inflation-Protected Securities (TIPS) in 1997. Backed by the full faith and credit of the U.S. government and assurances that inflation cannot eat away at their value, TIPS provide a risk-free asset for U.S.-based investors. The face value and coupon payments are both indexed to keep pace with inflation and preserve…

Understanding the relationship between bond risk and time to maturity and duration of a bond provides the basis for understanding the bond yield curve. The yield curve shows the yields to maturity for a series of bonds — typically U.S. Treasury bonds — with the same credit quality but different maturity dates, along with the…

We all know diversification is important. But it’s always nice to be reminded just how important it is – and even better when you have news articles linking directly to academic papers like this one does. Hendrik Bessembinder, a researcher at Arizona State ran a really interesting analysis. If you look at individual stocks in…

Investors can find signals anywhere, for better or worse. Apparently one of the better ones out there is the Super Bowl. Since 1967, when the AFC wins, the markets are down for the year. Unfortunately for me, I live in New England. I’m not sure what I’m supposed to do… At least this time it seems…