New 30-Year TIPS Gets Record-Low Real Yield Of 0.261%

Feb. 20, 2020 4:31 PM ETTIP14 Comments
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  • The real yield of 0.261% was the lowest for any 29- to 30-year TIPS auction in history, and much lower than the previous record of 0.479%.
  • The coupon rate also set a record low of 0.250%, much lower than the previous record of 0.625%.
  • Long-term real yields are in a "weird" zone. Beware.

The U.S. Treasury's auction of a new 30-year Treasury Inflation-Protected Security went off Thursday with a sensational result: A record low real yield of just 0.261%, well below any 29- to to 30-year TIPS auction in history.

This was CUSIP 912810SM1, and the auction set its coupon rate at 0.250%, also a record low for any TIPS auction in history. No 30-year TIPS, dating back this security's birth in 1998, has ever had a coupon rate of less than 0.625%.

A TIPS is an 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.

In this case, CUSIP 912810SM1 will have a real yield to maturity of just 0.261%. No kidding, this is remarkable. Before today, the lowest auctioned real yield for any 29- to 30-year TIPS was 0.479%, set in the dark days of quantitative easing in October 2012. There have been 35 TIPS auctions of this term since 1998, and this one came in with the lowest yield ever, by a big margin.

Long real yields are ... weird

Over the last 10 years -- because of aggressive Federal Reserve intervention -- TIPS yields across a large spectrum have been much lower than they are today. But in February 2020, it is only the very long end of the yield curve that is severely depressed. I find this hard to understand, except that I have seen numerous commentaries recently extolling long-term TIPS as an investment. So, is high demand for long-term inflation protection driving yields lower? It could be. Two charts will provide evidence.

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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