Sep 15, 2021
Marcel Benjamin is back on the show for another appearance to dig into the details around TIPS Bonds (Treasury Inflation Protected Securities). How they work and why they are misunderstood by many. Plus, we discuss interest rate risk comparing high and low interest rate environments. Yup, even a little bond convexity primer! This was a great conversation that gives anyone a much greater depth of knowledge on an asset class that is a little more complicated.
- T Bonds and Bills: lower interest rates, increased duration and sensitivity to changes in interest rates
- Examples of potential changes in market value (risk) when interest rates go up or down
- Its about looking at the series of cash flows
- What are TIPS (Treasury Inflation Protected Securities) Bonds?
- How are TIPS Bonds designed to be adjusted for inflation based on the CPI?
- Size of the TIPS Bond market
- Primary risks include interest rate changes and deflation.
- Breakeven rates a view into market view on inflation
- 5-Year/ 5-Year Forward Rates
- Auctions going off at negative yield to maturity
- Comparing 2020 to 2008 break evens
- Bond Convexity primer
- Mortgage bonds unique convexity due to pre-pays by homeowners
- Duration over the years on the US AGG (Aggregate Bond) Index
Mentioned in this Episode:
Marcel Benjamin’s prior podcast appearance covering High Yield Bonds https://brokenpiechart.libsyn.com/marcel-benjamin-high-yield-bonds-explained-what-are-zombie-companies
Information on State Street Global Advisors SPDR fixed income products https://www.ssga.com/us/en/intermediary/etfs/capabilities/simplify-investing-with-fixed-income-etfs/sdpr-fixed-income-etfs
Contact Derek Moore derek.moore@zegafinancial.com
Derek Moore’s Book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547?ref_=nav_signin&