There’s a new issue of a 10-year Treasury Inflation-Protected Security coming up July 21, so prospective buyers will want to keep up with the likely yield (which is the base interest rate of a TIPS; in addition, the owner’s principal keeps rising with inflation until maturity.)

Boring info, but necessary … A lot of people don’t know what a TIPS is, or how it auctions. So I will try to explain. You can find lots of information at TreasuryDirect.gov, but I admit that government site is a bit hard to navigate. So I will try …

That base yield is set at auction. The TIPS also has a ‘coupon rate’ — the actual amount of interest it will pay over the next 10 years. If the coupon rate is 1% and the TIPS auctions at 0.9%, buyers will have to pay more than $100 for each $100 of this issue. If it auctions at 1.1%, buyers will pay less than $100 to get that 1% coupon rate.

As of Tuesday, the market yield for a 10-year TIPS was 0.676%. I get that by going to this Barron’s chart and looking at the yield for the TIPS maturing 2021 Jan 15. Since July 21 is a few weeks away, this number is going to change. But keep it in mind.

Here are the auction yields for every 10-year TIPS ever issued or reissued:

I highlighted the record low yield, 0.409% in November 2010, and the record high yield, 4.25% in January 2000. (I was a buyer of that one, but unfortunately it has matured. That is a fond memory.)

I also highlighted an unusual low point in April 2008 (1.25%), which is bracketed by higher numbers in July 2007 (2.749%) and October 2008 (2.85%). I think this is important because it shows that the 10-year TIPS yield can move fairly dramatically in a year or less.

This chart from the St. Louis Fed shows the eight-year pattern for 10-year TIPS yield:

The trend is definitely down. The recessionary period, shaded in gray, is interesting. It initially dipped, then rose as the Fed and U.S. government poured money into stimulating the economy. The peak in late 2008 may be an aberration, because financial institutions were selling off everything, including TIPS, to raise cash.

So, is a record low likely? TIPS yields are very hard to predict, and institutional geniuses out there are often wrong. But I doubt the 10-year TIPS auctioned July 21 will go below 0.409%.

I don’t know a lot about what charts can tell you, but the one above indicates to me that the 10-year yield is unusually low, but not insanely low. We could very well hang around in this sub 1.0% range unless 1) the economy severely worsens, creating a fear of deflation, or 2) the U.S. launches into yet another giant stimulus program. I am ruling out 3) the U.S. government defaults — hope we don’t get drawn into that mess.

What does that mean to you? If you are going to buy this TIPS at auction and hold it to maturity … well, you are going to get a subpar base rate. However, on all other counts you have a buy-it-and-forget-it investment, and you are protected against future inflation.

If you are holding a lot of money in TIPS mutual funds, your money could be at risk if the 10-year TIPS yield returns to a 1.5% to 2.0% range. As I showed in the chart above, that can happen pretty quickly.