I'd think it would depend on the shape of the yield curve, but with a nice smooth curve it wouldn't matter much.Let’s consider your item (1). Suppose the holding time for the bracket years is X years. During that period, the average time to maturity of the bracket years declines X years. The time to maturity of the hypothetical gap year TIPS also declines X years.Two issues I have with some posts in this thread:
1) Using original durations to decide how much of each bracket year to sell to buy a newly issued gap year TIPS, rather than then current durations.
2) Keeping original bracket years overpopulated and only selling enough to buy newly issued gap year TIPS, rather than moving the overpopulation to the now bracket year.
In both cases the "rather than" choices seem more intuitive to me, but I wonder how much difference it would make. Perhaps not much if I understand the prior post, although there are bid-ask spreads.
If the average duration of the bracket-year holdings is equal to the estimated duration of the hypothetical gap year TIPS at the start of the holding period, how much could the durations differ at the end of the period? Wouldn’t the two durations decline by about the same amount, thereby remaining well matched throughout the period? (Duration mainly depends on the time to maturity, but is also somewhat sensitive to coupon rate, and is insensitive to yield.) if the durations stay in sync reasonably well, the amount of each bracket year to sell doesn’t change significantly.
Statistics: Posted by exodusing — Mon Nov 11, 2024 5:35 am — Replies 384 — Views 38236