By David Enna, Tipswatch.com
CUSIP 912828VM9, a 10-year Treasury Inflation-Protected Security, was born at auction on July 18, 2013, generating a real yield to maturity of 0.384%. It matured Saturday, July 15. How did it do as investment? Pretty well, actually.
I was a buyer of this TIPS back in July 2013, drawn in by the positive real yield and potential coupon rate of 0.375%. This auction broke a string of nine consecutive auctions of the 9- to 10-year term with negative real yields. So CUSIP 912828VM9 was a welcome break from that negative-rate misery.
On the day of the auction, a 10-year nominal Treasury note was yielding 2.56%, setting up an inflation-breakeven rate of 2.18%. As is turned out, inflation over the next 10 years increased 30.4%, for an annualized rate of 2.7%. When inflation runs higher than the inflation-breakeven rate, a TIPS investment is a winner.
According to data from eyebonds.info, This TIPS generated an annual nominal return of 3.055%, versus the Treasury note’s 2.56%. And by comparison, Vanguard’s Total Bond Fund ETF, BND, had an annualized total return (including dividends) of 1.47% over the last 10 years. The TIP ETF had an annualized total return of 1.93%.
If you bought an I Bond in July 2013 with a fixed rate of 0.0%, it so far has had an annualized nominal return of 2.64%.
Notes and qualifications
This analysis is an estimate of performance.
Keep in mind that interest on a nominal Treasury and the TIPS coupon rate is paid out as current-year income and not reinvested. So in the case of a nominal Treasury, the interest earned could be reinvested elsewhere, which would potentially boost the gain. For certain, we don’t know what the investor could have earned precisely on an investment after re-investments.
In the case of a TIPS, the inflation adjustment compounds over time, and that will give TIPS a slight boost in return that isn’t reflected in the “average inflation” numbers presented in the chart.
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• Upcoming schedule of TIPS auctions
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
0.5% / year isn’t a huge difference over 10 years. If you bought $100k 10 years ago (for someone with more lavish living expenses) that would be a difference of ~$5k total compared to nominals. At least for this short period of unexpected inflation, nominals weren’t completely destroyed. $5k is real money for sure but wouldn’t make the difference between a life of luxury or not.
The next decade will be interesting though, as real yield of tips ~ 1.5% vs 10 year nominals of 3.8%, with breakeven inflation around 2.3%, similar to the 2.18% 10 years ago. Seems like tips are still the way to go for buy and hold to bond maturation
Investor.
Evidently there are 7 share classes, each with a different ticker symbol and fee structure. You can find them listed near the bottom of this page: https://www.morningstar.com/funds/xnas/ponax/quote
For the bond portion of my portfolio (which I use mainly for preservation of capital rather than growth), I’ve decided to stay away from bond funds all together and stick to individual Treasuries held to maturity. But just out of curiosity, I decided to look at the return of a managed bond fund during the time period covered in this post for comparison. The fund I checked was PONAX since I’ve invested in that fund in the past. According to Morningstar, its 10 year annualized total return (including dividends) was 3.88%, with positive returns every year except 2022.
PONAX is a front load fund (3.75%) with an expense ratio of 0.9%. It has a total return YTD of 4.55%, which is good. Is there a way around that load?
This fund is available NTF (No Transaction Fee) and offered load-waived through Fidelity.” Other brokerage firms may do the same. Also, there may be an ETF version of this fund or other share classes that have a different fee structure (although return may not match PONAX exactly.) I always purchased it through Fidelity with no load so really didn’t look into other options.