30-year TIPS auction: Lowest rate in history?

6/23 update: This 30-year TIPS was auctioned at a rate of 1.744%, which was indeed a record low for a 30-year issue.

The U.S. Treasury on June 23, 2011, will offer a 29-year, 8-month Treasury Inflation-Protected Security in a reopening of Cusip 912810QP6, which was first issued in February 2011. This same TIPS auctioned four months ago with a yield of 2.190%.

(The TIPS yield is a base number. In addition, for the life of the issue, your principal increases by the the rate of consumer inflation. So over time, both the principal and the interest you receive will increase, as long as the CPI rises.)

Right now, a week from the auction, it looks like this TIPS will auction off with a base yield of around 1.75%, (see updates below) which could end up being the lowest rate in history for a 30-year TIPS. (However, I need to point out that the Treasury stopped offering 30-year TIPS from Oct. 15, 2001 – when the base rate was 3.465% – until Feb. 15, 2010 – when the base rate had fallen to 2.229%.)

Pretty crafty work by the Treasury, to be locking up these much lower rates for 30 years.

I thought it would be interesting to look back at the rate of past 30-year TIPS auctions:

Go ahead, look longingly at those rates around 4% from 10 years ago. They are history. Will this June 23 auction bring a record-low base rate? Possibly not, since a similar reissue last Aug. 23 generated a yield of only 1.768%.

I ‘feel’ like this auction rate will end up being slightly higher. We will know more next week.

6/17 update: The market rate on this 30-year TIPS rose slightly on Thursday to 1.766%, still slightly below the lowest auction ever.

6/18 update: On Friday, the yield rose nicely to 1.815%. This issue is starting to look more attractive heading into next week’s auction.

6/21 update: On Monday, the yield rose again to 1.831%.

6/22 update: On Tuesday, the yield fell to 1.804%.

6/23 update: On Wednesday, the yield rose to 1.828%. My thinking is that should indicate an auction rate Thursday of 1.85% or higher, unless there is a shakeup in the markets.

If you are interested in buying this issue, check out the details on TreasuryDirect.gov. Noncompetitive bids will be accepted until noon, June 23.

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2 Responses to 30-year TIPS auction: Lowest rate in history?

  1. Pingback: Yield on 30-year TIPS? Ouch. | Treasury Inflation-Protected Securities

  2. Pingback: 30-year TIPS auctions at just 1.744% … disappointing? | Treasury Inflation-Protected Securities

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