The Switch From TIPS to TIP For Tracking Real Yields
In our charts we’ve stopped using the TIPS ETF for tracking Gold and are now using the TIP ETF, and this video explains why...
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We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
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We have a question from a community member saying they’ve noticed that in our charts we’ve stopped using the TIPS ETF for tracking Gold and are now using the TIP ETF, asking why we’ve made the switch?
Firstly, thanks for the question, you’re right we like to use TIPS ETF’s as a proxy for real yields, but we’ve changed the ETF we used just due to the way the one we used to use have been decoupling form real yields. Before I explain this in more detail though I think it’s very important to understand that the decoupling has been mostly driven by the composition of one specific TIPS ETF and doesn’t have anything to do with the inverse correlation between Gold and Real Yields in any way.
So, when we look at Gold, as you know it has numerous different factors that can affect its price such as the US Dollar, inflation and inflation expectations, risk sentiment, quantitative easing, and interest rates, but out of all of these the biggest and most important driver of Gold is real yields, or nominal bond yields minus inflation expectations.
Now, when you look at TIPS ETF’s, they are Treasury Inflation Protected Securities. They are something you can trade as a security if you are trying to take advantage of inflation rising or falling or you can use it as a proxy for real yields.
However, it’s important to understand that there are more than one TIPS ETF out there, and all of them with have different holdings with different weightings.
Some time ago, before we knew about the great Tradingview plugins from Quandl, we had to rely on TIPS ETF’s to track real yields, and we used the SPDR Barclays US TIPS ETF with the ticker called TIPS.
However, recently, the ETF has been moving out of sync with Gold or real yields due to the way the EFT is set up with it’s holdings and some of the moves we’ve seen in treasury yields lately. And you can see whether we compare it to gold or inverted compared to real yields it’s been moving out of sync.
Now, recently we’ve learnt of the great tradingview codes from Quandl like I mentioned, which has given us a way of tracking real yields as we can see here in purple. But the only let down of this one has been that it only updates Daily, there is no intraday view for how real yields are moving which is frustrating if you are trading something like Gold in the short-term.
So, I just went through a few different TIPS ETF’s in Tradingview to try and find one that more closely resembles real yields, and the one that I like using right now is the IShares Trust TIPS ETF with the tricker TIP.
If we pop that one on the chart you can see how closely it follows real yields as opposed to the SPDR version. And again, this is mostly driven by the different type of holdings in the ETF.
If we compare the holding for the SPDR version and it’s weighting with that of the IShares version with it’s holding and weightings, there are quite a few differences.
So, for now, as long as the IShares one tracks real yields closer we’ll use that one instead of the SPDR version, and again it’s nothing against the SPDR version it’s just because we want something that better approximates real yields, and right now that is TIP and not TIPS.
So, it’s important to understand that it’s not a decoupling with real yields for treasury inflation protected securities in general, it’s just a change in the holdings of that one ETF that has made it move a bit out of sync.
That of course doesn’t mean the IShares version is perfect, we can see still see there are differences between that and the real yield version from Quandl, but it’s close enough for our liking and better yet it updates during exchange hours and not just Daily like the Quandl version does.
So, I hope that helps to explain our move from TIPS to TIP and as always, if there is any other questions just let us know.
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If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a question from a community member saying they’ve noticed that in our charts we’ve stopped using the TIPS ETF for tracking Gold and are now using the TIP ETF, asking why we’ve made the switch?
Firstly, thanks for the question, you’re right we like to use TIPS ETF’s as a proxy for real yields, but we’ve changed the ETF we used just due to the way the one we used to use have been decoupling form real yields. Before I explain this in more detail though I think it’s very important to understand that the decoupling has been mostly driven by the composition of one specific TIPS ETF and doesn’t have anything to do with the inverse correlation between Gold and Real Yields in any way.
So, when we look at Gold, as you know it has numerous different factors that can affect its price such as the US Dollar, inflation and inflation expectations, risk sentiment, quantitative easing, and interest rates, but out of all of these the biggest and most important driver of Gold is real yields, or nominal bond yields minus inflation expectations.
Now, when you look at TIPS ETF’s, they are Treasury Inflation Protected Securities. They are something you can trade as a security if you are trying to take advantage of inflation rising or falling or you can use it as a proxy for real yields.
However, it’s important to understand that there are more than one TIPS ETF out there, and all of them with have different holdings with different weightings.
Some time ago, before we knew about the great Tradingview plugins from Quandl, we had to rely on TIPS ETF’s to track real yields, and we used the SPDR Barclays US TIPS ETF with the ticker called TIPS.
However, recently, the ETF has been moving out of sync with Gold or real yields due to the way the EFT is set up with it’s holdings and some of the moves we’ve seen in treasury yields lately. And you can see whether we compare it to gold or inverted compared to real yields it’s been moving out of sync.
Now, recently we’ve learnt of the great tradingview codes from Quandl like I mentioned, which has given us a way of tracking real yields as we can see here in purple. But the only let down of this one has been that it only updates Daily, there is no intraday view for how real yields are moving which is frustrating if you are trading something like Gold in the short-term.
So, I just went through a few different TIPS ETF’s in Tradingview to try and find one that more closely resembles real yields, and the one that I like using right now is the IShares Trust TIPS ETF with the tricker TIP.
If we pop that one on the chart you can see how closely it follows real yields as opposed to the SPDR version. And again, this is mostly driven by the different type of holdings in the ETF.
If we compare the holding for the SPDR version and it’s weighting with that of the IShares version with it’s holding and weightings, there are quite a few differences.
So, for now, as long as the IShares one tracks real yields closer we’ll use that one instead of the SPDR version, and again it’s nothing against the SPDR version it’s just because we want something that better approximates real yields, and right now that is TIP and not TIPS.
So, it’s important to understand that it’s not a decoupling with real yields for treasury inflation protected securities in general, it’s just a change in the holdings of that one ETF that has made it move a bit out of sync.
That of course doesn’t mean the IShares version is perfect, we can see still see there are differences between that and the real yield version from Quandl, but it’s close enough for our liking and better yet it updates during exchange hours and not just Daily like the Quandl version does.
So, I hope that helps to explain our move from TIPS to TIP and as always, if there is any other questions just let us know.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
