30-Year TIPS Reopening Auctions With A Real Yield Of 0.908%

Oct. 19, 2017 3:21 PM ETTIP, VTIP, SCHP, SPIP, STIP, STPZ, LTPZ, TIPZ, TIPX, TDTT, TDTF, PBTP8 Comments
Tipswatch profile picture
Tipswatch
2.61K Followers

Summary

  • The after-inflation yield came in right on target, based on pre-auction trading in this TIPS on the secondary market.
  • The inflation breakeven rate was a moderate 1.92%. This TIPS seems fairly priced versus a nominal 30-year Treasury.
  • Long-term real yields haven't risen in 2017, even as short-term yields are up about 25 basis points.

The U.S. Treasury just announced that its reopening of CUSIP 912810RW0 - creating a 29-year, 4-month Treasury Inflation-Protected Security - auctioned with a real yield of 0.908%.

That after-inflation yield was on target with where this TIPS was trading on the secondary market this morning. It closed yesterday with a yield of 0.914%. Because this TIPS has a coupon rate of 0.875%, buyers got it at a discount. The adjusted price was about $100.84 for about $101.70 of value, after accrued inflation is added in.

Today's yield was slightly lower than the 0.923% generated at the originating auction on February 16 and shows how little long-term yields have fluctuated this year after bumping higher in the summer. In contrast, 5-year real yields have risen about 25 basis points over the same period. Here's the year-to-date trend for 30-year real yields:

30-year real yieldsInflation breakeven rate. With a 30-year nominal Treasury trading today with a yield of 2.83%, this TIPS gets an inflation breakeven rate of 1.92%, meaning it will outperform a nominal Treasury if inflation averages higher than 1.92% over the next 29 years. Inflation expectations have been rising since summer after reaching 2017 highs early in the year. Here's the year-to-date trend for the 30-year inflation breakeven rate:

30-year breakevensAt this point, as I said in my preview article for this auction, long-term TIPS seem fairly priced against nominal Treasurys. Because 30-year Treasurys of all types are volatile investments, it's an interesting gamble on future inflation. Then again, a nominal return of 2.83% isn't very attractive. An EE Savings Bond will pay 3.5% if held 20 years.

Today's auction seemed to have some potential to disrupt the TIPS market: A long-term TIPS issued at a time when inflation remains iffy and the Federal Reserve is rolling back its stockpile of Treasurys. But this was

This article was written by

Tipswatch profile picture
2.61K Followers
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.

Recommended For You

Comments (8)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.