You mention TIPS yields being negative during the COVID era. As I read the Treasury page they say if held to maturity you never get less than your starting principal but I wonder what happens if you sell your TIPS before full maturity? Do you have the potential of losing principal?


Disclosure: I don't own TIPS, have never owned TIPS, but might want to in the future and doing my best to understand them though conversations like this one. I even let "principle" instead of "principal" slip through previously which certainly shows my likelihood for error.

The negative rate comment was confusing so let's address that. When treasury sells TIPS at a par value of $100k, they are guaranteeing the $100k nominal value will be returned to the purchaser at maturity. The inflation adjusted principal will fluctuate and the fixed % coupon will be paid on the fluctuating inflation adjusted principal amount.

My comment about negative rates was referencing the secondary market during that time. This really gets to the point of your question "Do you have the potential of losing principal". You really only know with certainty what you will receive AT MATURITY. If you must sell the asset at any point in between then you are at the whims of the market. Someone looking at a 10yr TIPS from 2015 with a fixed 0.70% coupon and only 5yrs remaining is going to compare it against a current 5yr TIPS with the 1.125% rate and want a discount to increase the overall yield. This brings to mind the visual of the 2023 Berkshire annual meeting with an "Available For Sale" sign in front of Warren and a "Held-To-Maturity" for Charlie.

So what do we do with all this "knowledge"? I would be interested in hearing thoughts from others. Going back to our 65yr old in 2008, maybe they should have done a ladder of say 5/10/20yr terms? Maybe not a bad plan and they would be feeling ok about the 2023 renewals due to the higher rates then. AI says the portfolio would be worth about $154K today at market so lower than what we saw earlier with the drag of the low rate renewals. With the average 20yr TIPS rate being 1.23% over the last 20yrs, now might seem to be a better than average time with rates above 2.2%? It's not something I'm currently in need of but interesting to think about for future planning.

Jeff