New 30-year TIPS will auction Feb. 16, 2012

The Treasury announced last week that it will auction a new 30-year Treasury Inflation-Protected Security on Thursday, Feb. 16. This will be CUSIP 912810QV3.

As always, you can buy this new issue directly from the Treasury by using TreasuryDirect, but if you are buying it for a tax-deferred account you’ll need to talk to your broker.

What to expect. A 30-year TIPS maturing in February 2041 is trading on the secondary market with a yield to maturity of 0.682%, so that gives a rough idea of the likely yield on this new issue. But new issues can be unpredictable. I’m guessing the rate will be a bit higher.

There have been only five new 30-year TIPS issues in history, because the Treasury stopped issuing them from 2001 to 2010. Here are all the new issues and their reissues:

As you can see, one year ago CUSIP 912810QPC auctioned with a yield to maturity of 2.19% (in addition to the inflation adjustment to principal over the 30-year life of the bond.) For buyers, that ended up being a very strong purchase. The market value of that TIPS has risen about 30% in a year as its yield has fallen to around 0.68%.

This happened in one year. Amazing. It demonstrates 1) the massive lack of confidence in the world’s economic recovery, and 2) the Federal Reserve’s aggressive program to buy long-term Treasuries and keep those rates very low.

If you are a trader and you want to buy this week’s issue, you should wonder: How likely am I to see a 30% increase in the value of a long-term Treasury, ever again? Not likely. It would mean TIPS buyers would be willing to take negative real returns over 30 years.

If you are buy-and-holder, and are building a TIPS ladder of varying maturities, this issue could be attractive, especially if the yield ends up being closer to 1%. At least for awhile, you won’t see positive real returns for any TIPS with 10-year maturities, or shorter.

If you are very, very worried about future inflation, then this TIPS also makes sense as a buy-and-hold investment, because you would be protected against that inflation. You can’t get that protection with a bank CD paying 1.2%.

If you decide to wait it out … This TIPS will be reissued on June 21, 2012, so you will get another shot if you suspect long-term rates could begin rising.

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One Response to New 30-year TIPS will auction Feb. 16, 2012

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

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