Next TIPS auction: 10-year Treasury Inflation-Protected Security, July 21, 2011

Update: Yes or no on this 10-year TIPS auction?

Buyers of Treasury Inflation-Protected Securities used have have to wait months for new auctions, but now they seem to come every month. And in fact … they do … you will have a TIPS buying opportunity every month for the rest of this year.

Next up  is a new-issue 10-year TIPS. The announcement will come July 14, and the auction is July 21, 2011. It will settle July 29. This is the last new issue of the year, the rest are reissues. Here is a 2011 schedule presented on ExploreBonds.com:

5-Year 10-Year 30-Year
January N
February N
March R
April N
May R
June  R
July N
August R
September R
October  R
November R
December R

N = a new issue that hasn’t been on the market before
R = a reopening of a bond sold in a previous auction

10-year TIPS, what to expect? Not much in the way of yield, unfortunately. Right now, a 10-year TIPS sold on the open market would net a yield-to-maturity of about 0.620%, plus the inflation adjustment to principal. That’s near historic lows, and … not very exciting.

The last 10-year reissue, issued on May 31, 2011, auctioned at a base yield of 0.887%. I was a buyer of that one, and I will probably hold my nose and buy the July new issue, in a small amount.

10 years, the sweet spot? Not sweet in yield, that is certain. Ten-year TIPS traditionally yield about 2% above inflation.

But if you are laddering TIPS, 10 years is a great number. Possibly you will be retired in 10 years? Then, when this TIPS pays out, you will have the option to keep the proceeds and spend it, or reinvest it however you wish. If you have a lineup of 10-year TIPS, you will have this option every year in retirement.

I want to keep a supply of TIPS paying out into the future.

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