Predicting yield: 30-year Treasury Inflation-Protected Security of June 23

No one can predict for certain what the yield will be for the reissue of the 30-year TIPS, which the U.S. Treasury will auction June 23. But we can get a pretty good idea. And I’m going to explain how to make that estimate, for this and all TIPS issues.

The announcement will come June 16, and it will include a ‘coupon’ yield of the TIPS being reissued. Most likely it will be a reissue of a TIPS that matures Feb. 15 2041, and that TIPS has a coupon yield of 2.125%. (In addition, as with all TIPS, your principal continues to grow at the rate of inflation for the life of the issue.)

The coupon yield? Ignore it.

The real base yield is set at the auction, and it is likely to be less than 2.125%. That means if you buy $1,000 of this TIPS, you will pay more, let’s say $1,050 for each $1,000 and that effectively lowers your yield.

Since TIPS are traded on the open market, you can get an idea of what the market yield of a 30-year TIPS is right now. You see my Blogroll on the right of this page? There is  a link called Barrons: Current TIPS values. If you click on it, you will go to a page Barrons updates daily with current market yields for TIPS. It is a great resource.

So if you look at that chart, and scroll all the way down to the bottom, you will find the issue that matures Feb. 15, 2041. It says this for Wednesday, June 8:

The yield column is a pretty good estimate of the base yield of this 30-year TIPS, sold Wednesday on the open market. So at this point, two weeks before the auction, you are looking at a base yield of 1.76%, even though the coupon rate is technically 2.215%.

This will change, so it is a good idea to keep an eye on this chart as we approach the auction. In the most recent 10-year and 5-year TIPS auctions, the rate that buyers received was a little better than expected. That could happen again.

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