Next Treasury Inflation-Protected Securities auction: Reissue of 30-year TIPS on June 23

According to the Treasury’s tentative calendar, the U.S. government will auction a  30-year TIPS at 1 p.m. on June 23. The announcement will come June 16 and the auction will settle on June 30. It will be a reissue, so the term will be close to 30 years, but not quite.

30 years. Is this a good idea? My first reaction is: “I won’t be alive in 30 years, why would I buy this?” OK, I would be 88 in 2041, so maybe I might be alive, but that is an awfully long term. I advocate buying and holding TIPS to maturity at TreasuryDirect.gov, and I don’t consider TIPS a trading investment.

Another reason 30 years is troublesome is that TIPS are paying a historically low base rate right now, in addition to the inflation adjustment to principal. My reason for liking a 5-year TIPS at the moment, even with a slightly negative base yield, is that it lasts for only 5 years. After 5 years, I might be able to reinvest to get a better rate on a 10- or 30-year TIPS.

On the other hand …. You will get a much better yield with a 30-year TIPS than you will get with a 5- or 10-year right now.

Here are current yields on TIPS in the 30-year range:

The 30-year TIPS coming June 23 is likely to pay a base yield of around 1.75%, along with the inflation adjustment to principal. That compares with negative 0.39% for a 5-year TIPS and 0.73% for a 10-year TIPS.

The last 30-year TIPS auction was closed Feb. 28, 2011, with a median yield of 2.19%.

A 30-year issue in February 2009, during the heart of the financial crisis, had a yield of 3.415%. (This was during a time when deflation was a much greater fear than inflation.) It was also a tremendous buying opportunity for TIPS and TIPS mutual funds. Imagine getting 3.4% above inflation on investment for the next 30 years.

So the trend has been a steady downward trend on TIPS yields, even for these ultra-long-term issues. That might continue, might not.

Finally, a story. In 1999 I invested a moderate amount in a 29-year, 6-month reissue TIPS, the only time I have bought a 30-year. I was uneasy about that long term. The yield was 4.069% above inflation — which was normal during the stock market bubble.

In the 12 years since I bought that TIPS, it has steadily paid 4%+ on ever-increasing principal. The accrued principal currently totals $1,359 for each $1,000 invested.

Wish I would have invested more.

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This entry was posted in Inflation, Investing in TIPS. Bookmark the permalink.

2 Responses to Next Treasury Inflation-Protected Securities auction: Reissue of 30-year TIPS on June 23

  1. Pingback: Making the call: Yes or no on 30-year TIPS reissue of June 23? | Treasury Inflation-Protected Securities

  2. Monte says:

    Good know-how! I have been hunting for something like that for a while now. Many thanks!

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