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How Inflation-Protected Funds Get To Inflate Their Yields

Sunday, May 1, 2011 - 2:40 PM
From the Wall Street Journal:
Given the way many TIPS funds interpret the SEC yield formula, the change in inflation over the latest reported month gets added to interest income to produce an annualized figure.
[...]
While the SEC yield is a decent guide in other bond funds, it can steer you wrong in an inflation-protected bond fund.

2
Ken TuminKen Tumin5,469 posts since
Nov 29, 2009
Rep Points: 125,077
1. Sunday, May 1, 2011 - 6:43 PM
This whirled of high finance gets more bizzare the more I think I'm learning any aspect of it.

From the same article (bold mine):
Pimco declined to comment on how it calculates the yields on its TIPS funds and whether investors could be confused by the high reported numbers.

The bottom line: While the SEC yield is a decent guide in other bond funds, it can steer you wrong in an inflation-protected bond fund. Before buying a TIPS fund, ask instead what its real yield is.

SEC yields "are like the square root of negative-1 in algebra," says bond expert Frank Fabozzi, a finance professor at Yale University. "They give you an imaginary number."

2
MikeMike327 posts since
Feb 22, 2010
Rep Points: 876
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