iShares Barclays TIPS Bond (TIP)

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Fed’s Stein sold off his TIPS right on time, disclosure shows

August 28, 2013, 1:40 PM

http://blogs.marketwatch.com/capitolreport/2013/08/28/feds-stein-sold-off-his-tips-right-on-time-disclosure-shows/

It’s been apparent for some time that Fed Gov. Jeremy Stein writes intelligent speeches because they often spark debate among Fed watchers.

What we didn’t know until recently is that he also makes intelligent trades.

A financial analyst at Stone Street Advisors who goes by the alias of "Dutch Book" , uncovered evidence of Stein’s clever trade that avoided sharp losses in mid-2012. The trade was discovered by combing through Stein’s financial disclosure form released by the Fed on Tuesday. All 19 top Fed officials released their assets and income for 2012.

The gist of the trade is that Stein avoided losing about 10% of his money by selling his Treasury Inflation Protected Securities and replacing them with short-term debt issues by investment-grade companies.

According to the disclosure form, Stein sold $250,000 – $500,000 worth of shares in the Vanguard Inflation Protected Securities fund VIPSX on May 24, 2012. The next day, he made a purchase in the same dollar range in the Vanguard Short Term Investment Grade VFSTX fund.

Treasury inflation-protected securities yields have risen substantially since May 24, 2012, with the 10-year note yield rising from -0.413% on May 25, 2012 to 0.615% on Wednesday. The Vanguard TIPS fund has lost about 8% from the sale, while the short-term high-grade fund, which invests in corporate bonds and U.S. government bonds with short- to medium-term maturities, is about flat from the date of his purchase.

The Stone Street blog was noticed by Matthew Klein, a reporter for Bloomberg View.

– Greg Robb