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A New 30-Year TIPS? Skip It

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  • 30-year real yields have been climbing, but not as quickly as yields for 5- and 10-year TIPS.
  • The inflation breakeven rate is currently a reasonable 2.15%, making this issue competitive with a nominal 30-year Treasury.
  • Risk/reward just isn't good enough to justify an investment, unless you can be sure of holding it for 30 years.

The U.S. Treasury announced Thursday that it will auction a new 30-year Treasury Inflation-Protected Security on February 15. This is CUSIP 912810SB5, and the coupon rate and real yield to maturity will be determined by the auction.

Although 30-year real yields (meaning after inflation) have been rising recently, I don't think this will be an attractive offering. A 30-year TIPS is a highly volatile investment, has cash-flow problems if held in a taxable account, and has a too-long maturity for many buy-and-hold-to-maturity investors. For those reasons, the after-inflation yield had better be outstanding to warrant an investment. It isn't.

Checking the yield trend. The best source of data for a new offering like this one is the Treasury's Real Yields Curve page, which estimates after-inflation yields each day. At Thursday's close, the 30-year estimate was 0.99%, up 22 basis points since January 1. That current yield is in line with the last three auctions of this 29- to 30-year term, and it's very possible that yield will climb above 1.00% by next Thursday's auction.

So, is 0.99% above inflation attractive enough? I'd say no, not when a 5-year TIPS (which will be auctioned in April) is yielding 0.68% and a 10-year (to be reopened in March) is yielding 0.76%. Those shorter-term yields have been climbing faster than the 30-year. They are a lot more attractive, with a lot less volatility. Here's a look at the 30-year real yield versus the 10-year over the last eight years:

30-year vs. 10-year

Right now, the yield spread between the maturities is down to 23 basis points, the lowest since 30-year TIPS returned to the auction market in February 2010. When the spread is that low, a 10-year TIPS is much more attractive, even for an investor with a 30-year timeline

Checking the inflation breakeven rate. The

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, 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.

Analyst’s 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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