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

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  • 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

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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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