Accounting for the increase in par value of TIPS

Unknown

Using Q2017 Deluxe for Windows is there a way to reflect the increase in the par value of Treasury Inflation Protected Securities (TIPS) and at the same time the interest income resulting from the amortization. I tried using add securities to account for the increase in par value but it resulted in new purchases.

Sherlock

Unknown

Sherlock, I have tried using the Reinvested Income and while it adjusts the par value it also creates a new purchase date, which should not happen with TIPS. I do not understand how to create a self referencing IntIncX transaction. perhaps you could explain how for me. Finally, I have only seen a IntIncX transaction as a result of a download.

Sherlock

Unknown

I appreciate your responses. However, when I followed your suggestion it simply created an income item. There doesn't seem to be any way to record the increase in par value and maintain the dating. It seems that the reinvest income is the best available option but not quite correct.

Sherlock

Stephen Singer said:

I appreciate your responses. However, when I followed your suggestion it simply created an income item. There doesn't seem to be any way to record the increase in par value and maintain the dating. It seems that the reinvest income is the best available option but not quite correct.

You have not followed the advice provided. For the par value, I suggested you use an entry in the price history of the security (divide par value by number of shares).

Good luck.

Unknown

There is no logic in creating a fictitious market value. TIPS represent a significant portion of the bond market, Quicken should have a way to properly reflect the transactions within the Interest Income dialog box such that it is called amortization that would function like Reinvested Income except that it would not result in creating small "purchases"  when in reality the par value increased on a specific day but the date of purchase doesn't change. Your solution would require a daily adjustment to the pricing in order to have quicken at least approximate the market value of the securities. If I need to do that I can use Excel and direct download of information.

Sherlock

NotACPA

Unknown

As of July 31, 2018 there were 1.348 Trillion does of TIPS in the public hands, this represents 9% of the total debt.

Unknown

Sherlock wrote "To track the par value, I suggest you use an entry in the price history of the security (divide par value by number of shares)." first I do not see how entering the par value divided by the "number of shares" addresses my question but it does create a meaningless price, after all the price history reflects the price of the security on any given date and is used to determine the market value at such date. So where am I wrong?

q_lurker

Unknown

Par value is a very important component in the TIPS discussion. TIPS trade based upon the original par value but the actual par value increases with inflation. My broker provides a daily pricing of the TIPS based upon the actual pricing of trades for the day. The issue comes in that the stated par value is always the original par value before inflation adjustments and Quicken doesn't have a reasonable mechanism to reflect the increasing par value. What Quicken should have is an Interest Income field that would allow for recording income and an increase in par value as of any given date but not create a new purchase such as results from using reinvest income.

NotACPA

Stephen Singer said:

As of July 31, 2018 there were 1.348 Trillion does of TIPS in the public hands, this represents 9% of the total debt.

9% is a tiny amount of the total public debt, by your own numbers.

Unknown

Stephen Singer said:

As of July 31, 2018 there were 1.348 Trillion does of TIPS in the public hands, this represents 9% of the total debt.

Fine, call it tiny, call insignificant I really do not care. Quicken, which considers itself as the premier financial management tool, should be able to handle it properly That is my point, not the size of the market. BTW, while it is "only" 9% it is 1.3 trillion perhaps that is insignificant to you as well.

Sherlock

Sherlock

Stephen Singer said:

Par value is a very important component in the TIPS discussion. TIPS trade based upon the original par value but the actual par value increases with inflation. My broker provides a daily pricing of the TIPS based upon the actual pricing of trades for the day. The issue comes in that the stated par value is always the original par value before inflation adjustments and Quicken doesn't have a reasonable mechanism to reflect the increasing par value. What Quicken should have is an Interest Income field that would allow for recording income and an increase in par value as of any given date but not create a new purchase such as results from using reinvest income.

Again, I suggest you post your request as an Idea.

Tom Young

Stephen Singer said:

Par value is a very important component in the TIPS discussion. TIPS trade based upon the original par value but the actual par value increases with inflation. My broker provides a daily pricing of the TIPS based upon the actual pricing of trades for the day. The issue comes in that the stated par value is always the original par value before inflation adjustments and Quicken doesn't have a reasonable mechanism to reflect the increasing par value. What Quicken should have is an Interest Income field that would allow for recording income and an increase in par value as of any given date but not create a new purchase such as results from using reinvest income.

Here's a mechanism that might work for you, though I haven't tried it and I'm always a little leery of repeated use of the return of capital action as it seems to sometimes produce funky results in Quicken.

When there's an increase in par value (twice a year?) enter a return of capital transaction as a NEGATIVE number.  That will increase the cost basis of the bond to the appropriate amount.

Then enter another MiscInc transaction in the same amount, crediting interest income.  That will zero out the "negative cash" created for the first transaction.

I'm unclear about the bond pricing mechanism, maybe an example would help here, but Quicken's calc of market value is simply (some price x # of shares) so if that's not working for you because of the "par value" issue, then it seems like you need to translate the broker supplied number to one that works in Quicken.

Unknown

Tom, I thought that your suggestion about using RoC as a negative might be a good work around. However, Quicken doesn't allow for a negative RoC. I am still of the opinion that TIPS and zero coupon bonds have this same issue of accreting par value and interest income and that Quicken should have a dialog box similar to Return of capital to reflect the increasing par value and interest income. Changing the "market value"  simply requires too much work each day. Until Quciken makes a change I will continue to use reinvest income and deal with the erroneous capital gain data at maturity.

Tom Young

I was unsure if Quicken would accept a negative number for a return of capital action so I did a test and it did work. Using QW2018.

Jim_Harman

Sherlock

Unknown

Tom Young said:

I was unsure if Quicken would accept a negative number for a return of capital action so I did a test and it did work. Using QW2018.

This will work for zero coupon because you accrete to par value from a discount. However, it does not work for TIPS where the accretion increases both the cost basis and the par value. Negative RoC only increases the cost basis.

Sherlock

Tom Young

Stephen Singer said:

Par value is a very important component in the TIPS discussion. TIPS trade based upon the original par value but the actual par value increases with inflation. My broker provides a daily pricing of the TIPS based upon the actual pricing of trades for the day. The issue comes in that the stated par value is always the original par value before inflation adjustments and Quicken doesn't have a reasonable mechanism to reflect the increasing par value. What Quicken should have is an Interest Income field that would allow for recording income and an increase in par value as of any given date but not create a new purchase such as results from using reinvest income.

The par value - meaning the amount to be received at maturity - and the basis are the same in this case at any point in time. Of course the ultimate par value and cost basis will only be known at maturity.


It seems like the issue is that "the quote " received has to be applied against an ever-changing par value /cost basis, a calculation that Quicken doesn't support. So it seems that a user needs to multiply the received quote times the current par value then divide that value be the number of bonds to come to a quote to use in Quicken.

Sherlock