Feb 06 2010
Scaling out of TIPS
On Friday I dumped 30% of my inflation protected securities in my retirement account. Below is the dividend adjusted chart of the mutual fund I sold.
The move seems to be getting tired so I sold off 30% of the position. I can’t complain about getting 30% out within 1% of the high. If the stock market tanks hard, it’ll take TIPS down with it. If TIPS continue to go up, then great, if not, I am going to pull the rest of the position fairly quickly. I’m not going to hold the rest of this position below $12.50. TIPS has not rolled over significantly yet to justify a panic liquidation like I did back in December with my currency hedge that turned out to be a good move.
The freed up money is sitting around as cash. Sell off 30% now, figure out what to do with it later. Allocation is now 26% cash, 17% VFITX, 24% VIPSX, 33% VUSTX. I am considering purchasing VFISX which is a short-term treasury fund. This way I can own every single Vanguard treasury mutual fund, all the way from the short end of the curve in T-bills, to short-term, to intermediate term, to long term, and TIPS.
The other thing with TIPS is that it doesn’t seem to be that attractive compared to the 10 year note. Below is the interest rate differential between the 10 year note and TIPS from Bloomberg.
Back in early 2009, TIPS were an absolute steal. But now, not so much, and with the looming threat of deflation, it’s tough to justify owning TIPS. If the interest rate differential falls back below 1%, then I’m a buyer.
UPDATE on 2/9/2010: I’m taking down the entire TIPS position today. Since it is a mutual fund, the order will go through after the close.
[...] rode TIPS up and got out in February. So far there hasn’t been much benefit in doing so. If the stock market continues to tank, [...]
[...] Back in February, I dumped my TIPS and swapped them for conventional bonds with the expectation that this yield differential would compress. It turned out to be the right move since I made the swap when the difference was up at 2.27%. Although TIPS are moderately higher now than they were in February, the conventional bonds that I swapped them for have gained more since then. [...]