For TIPS Investors, The Outlook Is Dismal For Next Week's 10-Year Reopening Auction

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  • The real yield to maturity could be as low as 0.10%, down more than 60 basis points since January.
  • Buyers are going to pay a premium, as much as 4.5% above par value.
  • For small investors, I Bonds are clearly the superior inflation-protected investment.

The US Treasury announced this morning that it will reopen CUSIP 912828N71 at auction on May 19, creating a 9-year, 8-month Treasury Inflation-Protected Security.

This TIPS originally auctioned on January 21 with a coupon rate of 0.625% and a real yield (after inflation) to maturity of 0.725%. I was a buyer of this TIPS at auction back in January, but a whole lot has changed in the ensuing four months.

CUSIP 912828N71 trades on the secondary market, so you can track its current real yield and price. Here is where this issue stands one week before the auction.

  • Bloomberg's Current Yields page shows it trading Thursday morning with a real yield of 0.14% and a cost of $104.61 for $100 of par value. Four months ago, this TIPS auctioned with a price of $98.95. As its yield has plummeted, its price has risen a remarkable 5.7%.
  • The Wall Street Journal's Closing Prices page shows this TIPS - which matures in 2026 Jan 15 - closed Wednesday with a yield of 0.103% and a price around $104.72.
  • The Treasury's Real Yields Curve page estimates that a full-term 10-year TIPS would have closed Wednesday with a yield of 0.14%.

So, one week away from the auction, it's looking like CUSIP 912828N71 will generate a real yield in the range of 0.10% to 0.15%, down about 60 basis points from its original auction in January. And buyers will be paying a big premium for the 0.625% coupon rate -- as much as 4.5% above par value.

A yield below 0.20% would be the lowest for any 9- to 10-year TIPS auction since May 2013. Thursday's auction will be the 18th of that term since May 2013.

I Bonds, and why this TIPS investment makes no sense. I am speaking from the viewpoint

This article was written by

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I am no longer writing for this site. More details. I will continue to post updates at my site, Enna is a long-time journalist based in Charlotte, N.C. A past recipient of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website. The Tipswatch blog, which launched in April 2011, explores ideas, benefits and cautions about U.S. Series I Bonds and Treasury Inflation-Protected Securities, which David believes are an under-appreciated and under-used investments. David has been investing in TIPS and I Bonds since 1998.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own individual TIPS but no TIPS mutual funds.

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