Making the call: Yes or no on 30-year TIPS reissue of June 23?

Even if you want to accumulate a portfolio of Treasury Inflation-Protected Securities, there is one big issue when it comes to this 30-year TIPS, Cusip 912810QP6:

Is 30 years too long?

My philosophy is simple: Buy TIPS at (or in a retirement account) and hold them to maturity. In my view, putting 25% of your money into TIPS and I Bonds – not mutual funds, the real thing – is an ultra-safe, sensible investment. The rest of that portfolio can be diversified into dividend-paying stocks, stock mutual funds, other bonds, TIPS mutual funds, real estate, etc.

TIPS and I Bonds play two important roles: 1) They are the unshakable ballast of your portfolio. They will not go down. They will pay off at maturity. They will provide a real gain until then. And, 2) they are insurance against future inflation.

But 30 years?



1) The auction yield should be around 1.8%, probably a bit higher. This is 110 basis points higher than the going rate on a 10-year TIPS, and a whopping 230 basis points higher than a 5-year TIPS. You will get that yield for 30 years, on a principal base that is constantly increasing with inflation.

The one good thing about 1.8% is that it will give your overall portfolio of TIPS a bit higher yield, balancing out some recent purchases, like the 5-year TIPS at negative 0.18%.

2) Inflation might not be a near-term threat, but it could be a threat – even a severe threat – in the next 30 years. This is a hedge against that threat. Can your bank CD promise the same?

3) Safety is high, when measured against other investments, at least.


1) That yield is not great. In fact, this TIPS was first issued four months ago with a base rate of 2.19%. It is likely that the TIPS rates will begin – eventually – moving more toward ‘normal’ levels, and for a 30-year that would be nearly 3%. However, I have been saying that for quite awhile, and I have been wrong.

This 30-year TIPS will be reissued again on Oct. 20, so you could park your money and wait it out, hoping for a higher yield in October.

There are two reasons that people buy 5-year TIPS at negative real yields: 1) They expect inflation to be higher than expected, and 2) It’s only five years.

This one is 30 years. You will be looking at it a long time in your portfolio.

On the other hand, if recent trends continue, we may someday look at 1.8% as an attractive rate. Unlikely.

2) Safety could reasonably become an issue in the next 30 years, as we are watching happen in Greece this week. The safety of U.S. Treasuries cannot be questioned, until you really start thinking about it. I don’t like going there.

3) 30 Years. It’s a long time.


Yes, I will invest in this TIPS, but I will reserve some funds for the upcoming 10-year and 30-year auctions of 2011. In other words, don’t bet the house on this one.


About Tipswatch

Author of blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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