10-year TIPS auction: The announcement

The U.S. Treasury today, as expected, announced its Jan. 19 auction of a new 10-year Treasury Inflation-Protected Security.

Here it is if you want to view it (.pdf)

But that pdf won’t tell you much. It is a 10-year TIPS, yes. It is CUSIP 912828SA9. The auction date is January 19, 2012. OK, we knew that.

What is the coupon rate, the actual base rate this TIPS will pay over the next 10 years? Well, that’s not mentioned. (For new issues, both the price and the coupon interest rate will be determined by the auction.) Let’s assume the coupon rate will be the lowest  the Treasury offers, and that is 0.125%.

That means buyers might have to ‘pay up’ for this TIPS, because the current secondary market for a 10-year TIPS is about -0.166%.

Things can change in the next week, so it’s worth watching this site to see what the market is paying for the TIPS that matures 2021 Jul 15, which is the closest comparable you can get to a 10-year new issue.

But I will warn you that TIPS auctions, especially new issues, can be very hard to predict. I readily admit that I am no expert, and I’m often surprised at the auction result.

Read more about this Jan. 19 10-year TIPS auction

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3 Responses to 10-year TIPS auction: The announcement

  1. joe says:

    This 10 year TIP auction in 3 days will be lousy for the individual investor. You will have to pay a premium over par for the bond and when the bond matures, you will lose out to inflation. I bonds are the SUPERIOR choice for January. I have never bought a negative yielding bond. It doesn’t make sense to lose out to inflation. At least the 30 years are still positive at .7%, but I wonder how long they will stay positive.

  2. tipswatch says:

    Joe, I’d have to agree on this TIPS issue. Getting a negative real return isn’t appealing, especially for 10 years. The only way it is appealing is if you foresee inflation running much higher than expected over the next 10 years. Buyers of traditional Treasures, bank CDs, money market funds, etc., are all accepting a return that is lower than expected inflation. I can’t see how this continues for the long run, but it could easily continue for a year. I Bonds at least lock in the rate of inflation, and can be sold after a year if overall interest rates improve.

  3. Drew says:

    If you think inflation will exceed expectations, check out the INFL ETN (and it’s close cousin DEFL). It basically goes long TIPS and short Treasuries. There is way more risk than buying a TIPS issue (it’s an ETN after-all) . . . but thought I’d just throw it out there.

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