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Let's talk TIPS, but not $TIP, instead let's dive into $LTPZ, Pimco's Long-Term TIPs ETF, effective duration 22 years, $700m AuM, 0.2% TER

I don't think i've ever seen $LTPZ on FinTwit, I came up with a simple framework to help...

@bondstrategist @AndreasSteno @RaoulGMI

It's simply a 'duration TIPs' ETF, just like $TLT or $EDV are 'duration Treasuries' ETFs

And it has some pretty cool characteristics in this world of out of control Central Banks...

@PriapusIQ @apollotradingsd @TheBondFreak @GeorgeGammon

Let's create a simple 2x2 framework with RoC of Inflation vs RoC of Long-Term Treasury yields (20-30 year)

4 quads:

1. Rising Inflation & Falling T Yields
2. Rising Inflation & Rising T Yields
3. Falling Inflation & Rising T Yields
4. Falling Inflation & Falling T Yields

Let's now dive into how $LTPZ performs in each:

1. Rising Inflation & Falling T Yields

This is the 'goldilocks' zone, inflation protection kicks in, and nominal yields falling means even nominal bonds would be going up

GREAT for $LTPZ - lets give it a ✅✅

2. Rising Inflation & Rising T Yields

Again, we get protection from inflation, but nominal yields rising isn't good

So overall it's a ✅❌

3. Falling Inflation & Rising T Yields

😬 - this is a yikes quad for us... We'd get wrecked here!

Pretty clearly a ❌❌

4. Falling Inflation & Falling T Yields

Falling inflation works against us, but falling T yields is good, so not bad

It's a ❌✅

Investing is all about probabilities, and for the sake of this example let's not get into bond convexity and other more detailed aspects (which are relevant too)

Which quads are most probable?

1. Rising Inflation & Falling T Yields ✅✅

Many think inflation will come (or inflation expectations will rise), and many also think the Fed cannot allow nominal yields to rise (the actual 'Fed Put' as they ARE buying Treasuries across the curve, including TIPS)

1. Rising Inflation & Falling T Yields ✅✅

Interestingly, this shouldn't normally be possible, if inflation (expectations) rise, T yields should rise, but CB craziness means its possible, especially if inflation starts to increase but Fed does nothing at first to quell it

2. Rising Inflation & Rising T Yields ✅❌

This is the classic 'reflation' situation, which TIPS were designed to protect you against, you have the low credit risk of US Gov debt, and inflation protection; but will the Fed really allow nominal yields to rise?

3. Falling Inflation & Rising T Yields ❌❌

This shouldn't be likely in normal times, and the Fed buying T's is making this scenarios even less likely - which is good for $LTPZ as it's a major yikes 😬 quad for the asset...

4. Falling Inflation & Falling T Yields ❌✅

This would be the classic 'deflation' situation, aka Japanification of the US. Many think this is highly likely, others not so much, but we'll do ok and should preserve capital in this scenario

Quad 1 may well have the highest probability in next 2-3 years simply due to the 'Fed Put'


Say Quad 2 happens (reflation), we should be protected unless yields go crazy high (which would be odd as US is reserve currency and can print at will)

Quad 3 does seem to be least likely quad, and that's good as it has the worst returns if it happened

Quad 4 is where data are pointing right now (i.e. deflation argument), so as it's the status quo, we have to give it a decent probability

So it's a USD denominated security that has in-effect zero credit risk (it's US Gov...), that has nice upside potential in Quad 1 - driven by CB largess; should preserve USD fairly well in Quads 2 & 4, and the least likely Quad 3 would be how it does poorly

So I think it's an interesting ETF to consider, it has more 'juice' than $TIP does as it's 3x the duration, but it has more risk too (!)

It can provide a potential hedge if equities don't perform, i.e. in a stagflationary world, which has a place in a portfolio I think


I do own $LTPZ (also $TIP and $IVOL) which as of today as the only 'inflation protected' Treasuries I own, and as I have mentioned several times in my podcast, I'm also long non-inflation protected Treasuries - $TLT, $EDV, $ZROZ

I often get asked about how to approach having US Gov bonds in a portfolio when there is so much uncertainty on deflation/inflation, so I thought this thread would be helpful

I have no affiliation with PIMCO or any ETF provider for that matter

If you have experience in trading $LTPZ I'd love to hear from you, please DM me, or just reply and we'll get a 'FinTwit Hive Mind' going

I've asked around a bit and can't find anyone who has traded it before, but it's $700m AuM, so there must be some people lurking :)

If you do decide to buy anything mentioned here, please DYOR before investing, i.e. read factsheet & prospectus so you really understand the product(s)

Let me know if this type of thread is helpful as I can do more like this if it is

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