10-Year TIPS Reopens At Auction With A Real Yield Of 0.450%

Sep. 21, 2017 2:19 PM ETTIP4 Comments
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  • The after-inflation yield of 0.450% was 20 basis points higher than where 10-year TIPS were trading on September 8.
  • Today's investors benefited from the Federal Reserve's announced intention Wednesday to unwind its bond portfolio and continue gradually increasing short-term rates.
  • The inflation breakeven rate of 1.82% is in the mid-range of recent results, but continues to indicate muted inflation expectations.

The U.S. Treasury just announced that its reopening of CUSIP 9128282L3 - creating a 9-year, 10-month Treasury Inflation-Protected Security - auctioned with a real yield of 0.450%, in line with recent yields for auctions of this term.

The after-inflation yield was 11 basis points higher than where this TIPS was trading Friday on the secondary market, so buyers should be pleased. This TIPS originally auctioned on July 20 with a coupon rate of 0.375% and a real yield of 0.489%. Buyers at today's auction got it at a discount, about $99.35 for about $100.07 of value, when accrued inflation is added in.

The TIPS market got a bump in yield Wednesday when the Federal Reserve announced - yet again - that it intends to wind down its $4.5 trillion bond portfolio and is likely to raise short-term interest rates one more time in 2017.

So today's auction got a real yield in line with recent 9-10 year TIPS auction. Yields in the secondary market had risen higher earlier in 2017, and then dipped in recent weeks. Here's the 10-year real yield trend for 2017 (today's result isn't mapped in the chart, but is marked in red):

10-year TIPS yieldsInflation breakeven rate. With a nominal 10-year Treasury trading today with a yield of 2.27%, this TIPS gets an inflation breakeven rate of 1.82%, which is a bit below recent trends, but higher than where TIPS were trading in early summer. Inflation expectations remain fairly muted, as the Federal Reserve noted Wednesday in its statement:

On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined this year and are running below 2 percent. ... Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is

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, TipsWatch.com.-----David 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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