New 10-Year TIPS Will Auction July 20; Is It Worth A Look?

Jul. 17, 2017 7:22 AM ETTIP7 Comments
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  • This new TIPS could have the highest real yield since January 2016, but keep an eye on yield trends - they have been falling.
  • The current inflation breakeven rate of 1.78% makes this TIPS attractive versus nominal Treasurys.
  • A reason to celebrate? Possibly.

The U.S. Treasury on July 20 will auction $13 billion in a new 10-year Treasury Inflation-Protected Security, CUSIP 9128282L3. The coupon rate and the real yield (after inflation) to maturity will be determined by the auction.

I consider a new-issue 10-year TIPS to be the 'sweet spot' of TIPS investing. The 10-year term offers the best balance of yield and maturity. Ten years is a reasonable time for a buy-and-hold-to-maturity investment. And because it is a new issue, buyers will be paying very close to par value. At reopening auctions, the price investors pay is more unpredictable.

So here it comes: A new 10-year TIPS with a real yield that is likely to rise higher than the last seven 9- to 10-year TIPS auctions. A reason to celebrate? Possibly.

The 10-year TIPS real yield had been rising fairly steadily since hitting a 2017 low of 0.31% on February 24. Real yields reached a high of 0.66% on July 10, just two days before Federal Reserve Chair Janet Yellen told Congress that the Fed would be cautious in raising interest rates in the future. That prompted a buying spree in Treasurys, bringing the 10-year real yield down to 0.57% as of Friday. Still mildly attractive, but not quite as promising.

Here's how to watch the yield fluctuations this week in the days before the auction:

  • The best data source for an originating auction is the Treasury's Real Yields Curve page, which shows daily estimates for full-term TIPS. As of Friday, as I noted above, the Treasury was estimating a real yield of 0.57% for a 10-year TIPS.
  • You can find real-time quotes on Bloomberg's Current Yields page, but keep in mind that these quotes are for TIPS trading on the secondary market, with slightly shorter yields. On Friday, the yield was 0.55%, which makes sense for

This article was written by

Tipswatch profile picture
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.

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