The official announcement will come Jan. 12, but we know the Treasury will auction a new 10-year TIPS, CUSIP 912828SA9, on Thursday, Jan. 19. The question is: Should we consider buying this Treasury Inflation-Protected Security?

Normally, for me, a new 10-year TIPS would be an automatic purchase, because I’ve long considered the 1o-year to be the ‘sweet spot’ for building a buy-and-hold TIPS ladder. You get a better yield over inflation than with shorter-term issues, and the 10-year holding period is about right for people nearing retirement or newly retired.

This one ought to be doubly automatic for me, since I have a 10-year TIPS, CUSIP 9128277J5, maturing Jan. 15. It you also bought this one in January 2002, you know Jan. 15 is sort of a sad graduation day. This TIPS was issued with a coupon rate of 3.375% and it auctioned with a yield to maturity of 3.48%.

In other words, this 10-year gem has paid original buyers 3.48% every year on a principal balance that has risen 27.4% with inflation over the last 10 years.  That was a mighty good investment any way you look at it, especially in a dire 10 years of stock market returns.

OK, but what about CUSIP 912828SA9? The new 10-year TIPS to be auctioned Jan. 19 certainly doesn’t qualify for gem status. It might be more of a lump of coal, but that’s for you to decide.

We don’t yet know the coupon rate, but it should be well below the 0.625% of the last new release of a 10-year TIPS, in July 2011. In the secondary market, that July TIPS is currently yielding -0.171%, as of Friday:

Although you can’t make a direct comparison, it’s apparent that the new 10-year TIPS may auction with a negative yield, meaning that buyers will be accepting a rate of return less than the rate of inflation over the next 10 years. That has never happened in the 15-year history of 10-year TIPS auctions. Not only has it never happened, no yield has ever been close to negative for a 10-year TIPS new issue.

Here are all the 10-year new issues:

The 10-year TIPS auction of Jan. 19 will be interesting to watch. Will it make history with a first-ever negative yield for a 10-year TIPS? And is that still attractive to buyers?

Lump of coal? We are certainly entering uncharted waters for Treasury yields. Uncharted waters ought to make you uneasy. A negative real return over the next 10 years ought to make you uneasy. But there are no super-safe alternatives, and TIPS protect you against an unexpected rise in inflation. You can’t get that protection with a nominal 10-year Treasury (currently yielding 1.98%) or a bank CD (about 1.8% for the highest yielding 5-year CDs). That inflation protection is the key reason for buying TIPS.

One alternative, and that is … I Bonds. For my TIPS maturing Jan. 15, my first reinvestment will be in I Bonds, which also protect you against inflation, are super safe and can be used as a short-term investment. You can buy up to $10,000 per Social Security number in I Bonds at TreasuryDirect.gov.

(Thanks to commenter Jay for updating me on the new $10,000 limit for I Bonds, which was announced Jan. 4. That announcement is worth celebrating. Even if you hate Treasury Direct – which I don’t – you should consider I Bonds as an investment this year.)

The current I Bond interest rate – 3.06% – guarantees that you will receive a 1-year return of 1.53%, but probably higher, even if you sell after one year and pay a three-month interest rate penalty. If you sell after 5 years, there is no penalty.

The $20,000 limit per couple for I Bonds points them toward the small investor, but I still think they are the superior super-safe investment in January 2012, clearly superior to a 10-year TIPS paying a negative real return.