Investing - Theory, News & General • Rolling long term TIPS for extra yield

For context I think that stocks are overvalued while long term TIPS offer an attractive alternative for the conservative investor.

The TIPS real yield curve increases fairly steeply from about 5 years out to around 20 years. In the nominal bond world one institutional strategy is to try to gain some extra yield by rolling higher yielding longer duration treasuries to lower yielding shorter duration treasuries.

I decided to give that a go with TIPS. Using the WSJ yields I computed the effective yield for the last 5 years of the July 2036 bond (2.34% yield) given the yield of the July 2031 bond (1.90% yield) and it comes to an effective real yield of 2.73% for the period from July 2031 to July 2036. That means if the yield curve has a similar shape in 5 years, you could make an additional 0.4% per year by selling the 2036 in 2031. You could use the proceeds for any other investment but if the curve is similar you could them to buy the 2041 with the plan to sell again in 2036. And so on. Far from certain but this strategy tends to increase treasury returns by using the upward sloping yields.

I repeated that calculation for the yearly TIPS that mature in Feb 2040 to Feb 2056 in each case for the period from July 2036 (the current near 10 year) to Feb 2040, 2041, …, 2055, 2056. That gives effective yields for the 3.6 to 19.6 later years of the 2040 to 2056 TIPS. For the 2042 to 2048 TIPS the effective roll yield for the later 5.6 to 9.6 years is between 3.5% and 3.6%. The yield curve flattens out so the roll yield doesn’t continue to rise and in fact drops a bit. Also the 2040 and 2041 effective yields are noticeably lower at ~3.3%.

Given the possible extra bang for the buck and given the shorter duration of the 2042 bond than the later ones with similar roll yields, I decided to buy a lot of the 2042s. Worst case I hold them and get the 2.78% real yield in 2042. Since the 2042s are at the front end of the high yield that might give me lots of opportunities for opportunistic profit taking starting in a few years.

Statistics: Posted by itsmeagain — Thu Aug 20, 2026 8:31 pm