Real Yield On 10-Year TIPS Reopening Drops To 0.149%, Lowest In 3 Years

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  • The Treasury market isn't attractive right now for small scale investors.
  • A real yield of 0.149% was the lowest for any 9- to 10-year TIPS since an auction in September 2016 generated a real yield of 0.052%.
  • The inflation break-even rate came in at 1.62%, low by historical standards but not out of line with recent results.

The U.S. Treasury's auction of $12 billion in a reopened 10-year TIPS generated a real yield to maturity of 0.149%, the lowest for any auction of this maturity since September 2016.

This is CUSIP 9128287D6, a 10-year TIPS that had an originating auction on July 18, 2019. It carries a coupon rate of 0.250%, based on the real yield to maturity at that July 18 auction, which came in at 0.282%.

A TIPS is a Treasury investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a 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.

At a reopening auction, the auctioned real yield to maturity is compared to the coupon rate to determine the price investors will pay... above or below par.

Because the real yield of Thursday's auction came in under the coupon rate of 0.250%, the result is that investors paid a premium over par value for the resulting 9-year, 8-month TIPS. The price was about $101.34 for about $100.37 of par value, after accrued inflation is added in. This TIPS will have an inflation index of 1.00372 on the settlement date of November 29.

It's remarkable to see the 10-year real yield dip as low as 0.149%, just a year after a similar auction generated a real yield of 1.109%. That's a drop of 96 basis points, spurred by Federal Reserve actions to lower short-term interest rates, plus investors' increasingly negative view of the U.S. economy.

Here is the trend in the 10-year real yield over the last 10 years, showing the deep dive after the Federal Reserve began an

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, 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 purchased through the Treasury or other providers without fees, commissions or carrying charges.

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