New 10-Year TIPS auctions with a real yield Of 0.045%, lowest in more than 3 years

Summary

  • Coupon rate was set at 0.125%, the lowest the Treasury will go.
  • Buyers had to pay a premium, an adjusted price of about $100.98 for $100 of par value.
  • The inflation breakeven rate came in at 1.54%, historically low and attractive against a nominal Treasury.

The yield ended up being lower than I expected, and it ran counter to a slight decline in the TIP ETF Thursday morning. I was expecting somewhere around 0.14%, so today’s auction indicates there is still strong demand for Treasury Inflation-Protected Securities.

Read my analysis at SeekingAlpha.com

Posted in Investing in TIPS | 4 Comments

Catching up on Thursday’s auction of a new 10-year TIPS

I’ll be working Thursday morning, so I won’t be able to post an update then. So, let’s take a look at where the auction of CUSIP 912828S50 stands right now, after the market close on Wednesday.

Last week, I theorized that this auction of a new 10-year Treasury Inflation-Protected Security could result in a real yield to maturity that was negative to inflation. But that doesn’t look likely now. (A ‘real’ yield is the yield after inflation. It doesn’t mean a negative nominal yield like we are seeing for some government bonds in Europe and Japan.)

If you check the Treasury’s Real Yield Curve Rates page, you can see that the Treasury’s estimate for the real yield on a full-term 10-year TIPS closed Wednesday at 0.13%, 19 basis points above the number on July 8. I think this Treasury estimate is the best guide for a new-issue TIPS. But that’s the last update you’ll see before the auction.

The trend over the last 12 days has been a gently rising yield, and if that continues tomorrow, this new 10-year TIPS should auction with a coupon rate of 0.125% and a real yield to maturity of about 0.13% to 0.15%.

If you are thinking about investing in this TIPS, but waiting until tomorrow to make your decision, I’d suggest waiting until at least 10 a.m. (you have until noon for non-competitive bids). Then, check the price of the TIP ETF, which closed Wednesday at $116.13. Here is the trend in the ETF price as yields have risen over the last 12 days:

trendSo … if you see the price of the TIP ETF falling Thursday morning, you can expect a yield higher than 0.13%. If you see the price rising, you can expect a yield lower than 0.13%. If the move isn’t dramatic, it shouldn’t make much difference.

TIPS auctions often involve ‘surprises,’ especially when a new issue is coming onto the market. But if there are no Earth-shattering developments overnight, I don’t see much of a surprise Thursday.

I will be posting the auction result after 1 p.m. at SeekingAlpha.com. In the meantime, ponder this chart of all 9- to 10-year TIPS auctions since 2008:

10tips

 

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U.S. inflation rose 0.2% in June; are days of deflation finally over?

Summary

  • The 0.2% number matched the consensus estimate, so no surprise for investors.
  • Non-seasonally adjusted inflation continued a trend of strong increases; it’s up 1.22% over three months.
  • Core inflation is up 2.3% over the last 12 months, certainly not ‘deflationary.’.

As usual, I posted my analysis over at SeekingAlpha.com, so please read it there.

In addition, you can use this link to see the new CPI indexes for all TIPS. June’s inflation numbers set the inflation indexes for August. June’s number continues a series of strong increases in non-seasonally adjusted inflation, which is up 1.22% since March.

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Coming July 21: Auction of a new 10-year TIPS

Summary

  • The coupon rate and real yield to maturity for CUSIP 912828S50 will be set by the auction.
  • The current market is pointing to a coupon rate of 0.125% and a real yield of about 0.03%.
  • Why would buyers be interested? TIPS are very cheap when compared to nominal Treasurys.

I just posted my analysis of the July 21 auction over at SeekingAlpha.com.

I don’t think this is going to be an attractive auction for the small investor, but big-money investors are going to be drawn in by currently very low inflation breakeven rate (1.45%) for a 10-year TIPS. That makes TIPS cheap versus nominal Treasurys.

Are you considering an investment? Read my analysis.

Posted in Investing in TIPS | 1 Comment

TIPS yields go negative to inflation – what’s the best move now?

Summary

  • TIPS yields have fallen to their lowest levels in three years.
  • The TIP ETF is up about 6.9% year to date, and it has outperformed the overall bond market.
  • Thinking you need inflation protection? Consider I Bonds instead of TIPS.

On July 5, the Treasury’s estimated real yield on a full-term 10-year TIPS fell below zero for the first time since April 2015. It closed Wednesday at -0.05%, the lowest estimated yield since June 5, 2013.

Do TIPS still make sense as part of your investment portfolio?

Read my analysis at SeekingAlpha.com

Posted in Investing in TIPS | 1 Comment

On a rare Wednesday auction, 30-year TIPS reopening goes off with a real yield of 0.905%

Hmmm… a TIPS auction on a Wednesday? I have to admit, I didn’t see that coming. I have been covering TIPS auctions for 5 1/2 years, and every single one was on a Thursday, unless the Thursday was a federal holiday.

I searched for a reason for the one-day leap forward, but couldn’t find one. Maybe the Treasury wanted to step aside during Great Britain’s Brexit vote. Maybe the Treasury has summer vacation plans. I saw today that Republicans in the US House voted to start their July 4th holiday today. Ah, the life …

At any rate, the Treasury’s auction Wednesday of a reopening of CUSIP 912810RR1 – creating a 29-year, 8-month TIPS – resulted in a real yield to maturity of 0.905%. (Real yield is the yield above inflation.)

I posted an analysis at SeekingAlpha.com, please read it there.

You can read all my recent articles on my profile page.

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Up next: A particularly ugly reopening auction for a 30-year TIPS

Summary

  • CUSIP 912810RR1 is going to be pricey and unattractive.
  • Federal Reserve didn’t do investors any favors by backing off from rate increases.
  • Definitely avoid buying this TIPS in a taxable account; it will be cash flow negative.

I posted an analysis of this reopening on SeekingAlpha.com, read that here.

You can see all my SeekingAlpha posts on this page.

Posted in Investing in TIPS | 3 Comments