30-Year TIPS: Poster Child For A 'Volatile' Safe Investment

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  • The Treasury will reopen CUSIP 912810SM1 in a Thursday auction, creating a 29-year, 6-month TIPS.
  • The real yield looks likely to be around -0.26%, making this the first TIPS of this term to get a negative real yield.
  • Investors will probably pay a huge premium, about 16% above par value. This TIPS isn't attractive for a buy-and-hold-to-maturity investor.

The U.S. Treasury will be offering $7 billion Thursday in a reopening auction of CUSIP 912810SM1, creating a 29-year, 6-month Treasury Inflation Protected Security. Do I think you should invest in this TIPS? No. But let's look at it anyway.

Dave at Great Pryamids of GizaThis TIPS was created in an originating auction on February 20, when it generated a real yield to maturity of 0.261%, the lowest in history for any 29- to 30-year TIPS auction. February 20? That seems like a lifetime ago. Consider this: I wrote about that auction from a hotel room in Cairo, Egypt, where I was wrapping up a two-week vacation. This photo was taken a few hours before the auction's close, at the Giza Pyramids outside Cairo.

The world has changed since February 20, and just about the entire globe has been on lockdown ever since. The stock market has made a round trip to hell and back. In the Treasury market, both nominal and real yields have declined to record-low levels and remain very, very low.

Back in February, CUSIP 912810SM1 ended up with a coupon rate of 0.25%, much lower than the previous record of 0.625% for any TIPS auction of this term. Investors got it at a slight discount, about $99.68 for $100 of par value.

I wasn't a fan of this TIPS in February, because the very low yield and 30-year term made it highly undesirable for me, a buy-and-hold-to-maturity investor. But you know what? I was wrong.

How things change

A 30-year TIPS is a very volatile investment, even though it offers the superb safety of being issued by the U.S. Treasury. And that volatility makes it attractive to speculators, who thrive on volatility. So CUSIP 912810SM1 has turned into a huge winner for the buy-and-trade investors who bought in February.

Just six

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 purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

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