Coming March 22: Auction to reissue 10-year TIPS

The formal announcement is supposed to come Thursday, but the Treasury has already let it slip that it will auction a reissue of CUSIP 912828SA9 on March 22. This Treasury Inflation-Protected Security was first issued on Jan. 19, with a coupon rate of of 0.125%, but it auctioned at -0.046%, the lowest rate ever for a 10-year TIPS.

What can we expect? Since this is a reissue, you can check the current market value of this TIPS at sites like this. Here is the value as of Tuesday, March 13:

The yield, as has been the trend, has continued to decline and is currently -0.114%, which means that buyers yesterday were willing to accept 0.114% less than the rate of inflation over the next 10 years.

While that sounds like a miserable deal, it is … well, it is miserable. But it all depends on what you think the rate of inflation will be over the next 10 years, and how much you fear an unexpected bump in the rate of inflation. As of Tuesday, a 10-year traditional Treasury was paying 2.14%, meaning that this TIPS would be a better investment if inflation runs at 2.254% or more over 10 years.

While I think inflation might be higher than 2.254%, I can’t say that is a sure thing. And that is the dilemma for investors in this TIPS reissue.

Here is an interesting fact: On Jan. 19, when this TIPS was first issued, a 10-year traditional Treasury was selling for 2.01%. Since then it has increased to 2.14%, or 13 basis points. But the interest rate for this TIPS trading in the open market has fallen by about 7 basis points. That means the inflation breakeven point has risen by 20 basis points, or 0.20%. That is not a good thing.

From a Bloomberg report today:

The difference in yield between Treasury Inflation Protected Securities and nominal bonds, known as the break-even rate, indicated that investors expect consumer prices to rise 2.2 percent annually over the next five years, the highest since May. The average over the past year is 1.88 percent.

That was yesterday. Today … I’d say keep an eye on the 2022 Jan 15 TIPS value  in the next week. We could see some changes. With the stock market on a very steep incline, TIPS values should be decreasing and rates should be increasing.

The TIP ETF today fell fairly dramatically to $117.37, a 0.93% percent one-day loss. That means the yield on this 10-year TIPS will be getting more attractive. For TIPS buyers, this is good news.

If that 10-year TIPS rate appears to be heading toward zero or above, this looks like an attractive issue. If it dips even lower, buyer beware.

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5 Responses to Coming March 22: Auction to reissue 10-year TIPS

  1. joe says:

    I think for this 10 year reissue TIPS for march, one would have to be insane to participate in it. In fact, I only participate in auctions when I feel the real yield will be positive. The other interesting thing is on the 30 year TIPS, the real yields on the secondary market have gone up by .1%, so one sold their 2042 30 year TIPS from February, they would end up losing money on the secondary market. As it is said, you can only buy the yield of today. But I would highly recommend not buying this TIP at the auction this month. The 5 year in April appears to be an even worse deal, but time will tell.

  2. tipswatch says:

    Negative yield on a 10-year TIPS isn’t attractive, especially when the yield on a 10-year traditional Treasury is starting to rise, at 2.29% today, same as yesterday, but the highest rate of the year, TIPS advanced slightly in price today. But have we seen a bottom in Treasury yields? It seems very possible. That would move the 10-year TIPS rate above zero, if not next week, then by the next auction.

  3. Hans says:

    A very useful post, thank you.

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