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TIPS During Deflation
Copyright: The Finance Buff

This spreadsheet compares the real yield of two TIPS bonds during deflation.
For more information, see
TIPS During Deflation

Assumptions
Average annual inflation/(deflation) until maturity	-1.00%
Interests reinvested at	2.00%	real rate

	Issue A	Issue B
Purchase Date	12/30/2008	12/30/2008
Index Ratio on Purchase Date	1.17957	1.17248
Coupon Rate	1.875%	2.000%
Maturity Date	07/15/2013	01/15/2014
Quoted YTM on Purchase Date	3.032%	2.869%

Calculations
	Issue A	Issue B
Maturity (years)	4.54	5.05
Duration	4.3	4.7
Price	95.12	95.95
Real YTM using Current Dollar	3.032%	2.869%
Cumulative inflation/(deflation) until maturity	-4%	-5%
Index Ratio on Maturity Date	1.1269	1.1202
Payout without par floor	112.69	112.02
Payout with par floor	112.69	112.02
Payout boost factor	1.000	1.000
Real YTM with par floor	3.03%	2.87%
Increase in YTM due to par floor	0.00%	0.00%
Nominal YTM	2.00%	1.84%

With specified interest reinvestment rate
Real return	3.02%	2.85%
Nominal return	1.99%	1.82%

Sensitivity Analysis
	Real YTM	Real YTM	Nominal Return	Nominal Return
Average Annual Inflation/(Deflation)	Issue A	Issue B	Issue A	Issue B
-3.00%	3.03%	2.87%	-0.07%	-0.24%
-2.50%	3.03%	2.87%	0.44%	0.28%
-2.00%	3.03%	2.87%	0.96%	0.79%
-1.50%	3.03%	2.87%	1.47%	1.31%
-1.00%	3.03%	2.87%	1.99%	1.82%
-0.50%	3.03%	2.87%	2.50%	2.34%
0.00%	3.03%	2.87%	3.02%	2.85%
0.50%	3.03%	2.87%	3.53%	3.36%
1.00%	3.03%	2.87%	4.05%	3.88%
1.50%	3.03%	2.87%	4.56%	4.39%
2.00%	3.03%	2.87%	5.08%	4.91%
2.50%	3.03%	2.87%	5.59%	5.42%
3.00%	3.03%	2.87%	6.11%	5.94%
3.50%	3.03%	2.87%	6.62%	6.45%
4.00%	3.03%	2.87%	7.14%	6.96%
4.50%	3.03%	2.87%	7.65%	7.48%
5.00%	3.03%	2.87%	8.17%	7.99%

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