30-Year TIPS Auctions With Real Yield Of 0.501%, Lowest In Nearly 7 Years

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  • Today's reopening auction generated a real yield of 0.501%, a whopping 59 basis points lower than the originating auction on February 21, 2019.
  • Investors had to pay a huge premium for the 1.0% coupon rate, about $115.68 for about $101.79 of value, after accrued inflation is added in.
  • Nevertheless, this auction appears to have been met with strong demand from big-money investors.

The Treasury's reopening auction of CUSIP 912810SG4 - creating a 29-year, 6-month Treasury Inflation-Protected Security - went off Thursday with a real yield to maturity of 0.501%, the lowest yield for any auction of this term since October 2012.

That real yield was down a bit from where this TIPS was trading on the secondary market at noon, an hour before the auction close. At that time, the real yield was 0.52%. The lower yield at auction indicates this issue had solid demand from investors.

TIPS are Treasury investments that pay a coupon rate well below that of other Treasury investments of the same term. But with TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So the "real yield to maturity" of a TIPS indicates how much an investor will earn above inflation.

CUSIP 912810SG4 had its originating auction on February 21, 2019, generating a real yield of 1.093% and a price of about $97.48 for $100 of par value. The coupon rate was set at 1.00%. Thursday's real yield was a whopping 59 basis points lower than the originating auction, and that meant investors had to pay a huge premium for the 1.00% coupon rate.

The adjusted price was about $115.68 for about $101.79 of value, after accrued inflation is added in. This TIPS will have an inflation index of 1.0179 on the settlement date of August 30, 2019.

The auction followed a months-long trend of swooning Treasury yields for both nominal and inflation-protected investments. Here is the year-to-date trend for the 30-year real yield, showing the dramatic trend downward:

30-year real yieldThe real yield of 0.501% is the second lowest for this term in the entire history of 29- to 30-year TIPS auctions. The lowest was 0.479% for a reopening auction in October

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.

Additional disclosure: David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he recommends can be purchased through the Treasury or other providers without fees, commissions or carrying charges.

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