Next auction: 10-year TIPS on Jan. 19, 2012

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:

10 year TIPSAlthough 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:

10 year TIPS historyThe 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

(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.


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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6 Responses to Next auction: 10-year TIPS on Jan. 19, 2012

  1. Pingback: Recapping 2012: The year in TIPS | Treasury Inflation-Protected Securities

  2. tipswatch says:

    I did buy I Bonds this week, with money I received from a maturing TIPS. I saw no need to wait, since I consider I Bonds a (possibly) short-term investment. If things change in a year, I can sell them and reinvest elsewhere, with little penalty. You can wait until April to make your decision and ponder what the next inflation adjustment will be (it can be predicted fairly accurately one month out). The base rate, though, will nearly positively, absolutely be 0.0%.

  3. Drew says:

    Tipswatch: Agreed on ibonds as a better deal now than the 10yr TIPs. My question is — would you buy the $10K now, or wait until May to see if there is a more attractive rate on them? (rates change in May and November, correct?) Thanks–

  4. tipswatch says:

    Jay, wow, that is great news. Thanks for the heads up. That is the best news of 2012 so far.

  5. Jay says:

    For I-Bonds, that is….

  6. Jay says:

    The $10,000 purchase limit is actually per individual, not per couple.
    It was just recently changed for 2012:

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