The Treasury today announced that its new issue 10-year Treasury Inflation-Protected Security, CUSIP 912828SA9, auctioned at a yield to maturity of -0.046%, the lowest rate ever for a 10-year TIPS and the first-ever negative yield for a 10-year TIPS.
As expected the TIPS has a coupon rate of 0.125%, meaning that buyers of this new issue will need to ‘pay up’ — about $101.66 for each $100 to produce the effective yield of -0.046%. This TIPS matures Jan. 15, 2022.
The previous record low for a 10-year TIPS new issue was 0.639% for the security auctioned July 21, 2011. That is the only other new issue that has ever gone below 1% yield to maturity.
(The principal balance of a TIPS issue continues to grow with inflation until maturity. In effect, buyers of today’s new issue were accepting the rate of inflation minus 0.046% for 10 years. Keep in mind that a traditional 10-year Treasury is paying 2.01% today, meaning that inflation would have to run just 2.056% over the next 10 years to make this TIPS attractive versus the traditional 10-year. It’s a reasonable conclusion.)
Reaction to the auction, reported by Bloomberg:
“You’re losing purchasing power for the privilege of lending to the U.S. government,” said Eric Van Nostrand, an interest-rate strategist in New York at primary dealer Credit Suisse Group AG. “The success of this auction suggests demand for TIPS remains strong.”