On Thursday, April 21, the Treasury plans to sell $14 billion in five-year inflation-protected securities. The issue date is April 29. The TIPS mature April 15, 2016. Cusip number is 912828QD5.
Here is a .pdf with full details of the auction.
Buy it or skip it? I decided to buy it, in a small amount. Because I have been buying TIPS for about 12 years, I have TIPS that mature each each year, plus I earn interest that I want to reinvest. This amounts to a reinvestment, not a major investment. That makes the choice easier. I don’t think this issue is appealing for a major investment.
What are the positives? 1) It matures in five years, 2) It is super safe (no matter the S&P’s outlook) and 3) It is protected against a spike in inflation. I will hold it to maturity.
What are the negatives? 1) It will have a negative base interest rate, probably in the range of -0.2% to -0.4% and 2) Inflation is not likely to soar in the next five years.
A five-year regular Treasury is yielding 2.09% as of Monday, so that means the breakeven inflation rate for this 5-year TIPS will be about 2.49%, if the TIP yields -0.4%. (It could be even larger if there is high demand for this TIPS.)
So … not a great deal.
Alternatives? Not much out there for super safe investments.
The regular five-year Treasury is paying 2.09%, also not a great deal, with no inflation protection. In fact, I think that rate is insanely low.
The best rate out there for a 5-year CD is from Aurora Bank at 2.43%. I would buy that CD before I bought a regular five-year Treasury. But this has no inflation protection.
My tax-free money market fund is paying 0.12%. Ouch.
Municipal bonds? The going rate is 1.63% for a 5-year AAA issue.
With this 5-year TIPS, I am going to buy it and forget it. Done.