The U.S. Treasury today posted its formal announcement of the five-year TIPS to be auctioned Thursday, April 19. It is CUSIP 912828SQ4, a new issue. It will most likely auction with a coupon yield of 0.125%.

We already know this is a highly undesirable auction, except for big institutional money funds, pension funds and foreign central banks. For the little guy, this one is not attractive.

Why?

TIPS are near their all-time high values (meaning all-time low yields), and that is magnified in short-term TIPS issues. As of the close today, a TIPS maturing 2017 Jul 15 (very close to 5 years) is paying a yield to maturity of -1.193%. Yes, that is negative. But since TIPS have their principal adjusted to match inflation until maturity, that means this issue will pay 1.193% less than the rate of inflation for five years.

You can go to TreasuryDirect.gov right now, today, and buy an US Savings I Bond paying the rate of inflation (minus nothing!) for 30 years, but sellable after five years without penalty. That I Bond also has preferential tax treatment over TIPS. The problem is you can buy only $10,000 per person, per year, of I Bonds. So that is $20,000 for a couple.

Until you hit the limit, there is no contest … buy I Bonds up to the limit.

Who would buy this TIPS? I have said this many times in the last year: ‘The good thing about a five-year TIPS is that it matures in five years.’ The pain is rather short term. Big money funds, pension funds and foreign nations can afford to lose out to inflation for five years, because every super-safe investment (except I Bonds, which make no sense for big investors) is also paying way less than inflation.

5-year breakeven point? It’s worth comparing this five-year TIPS with a 5-year traditional Treasury. A five-year traditional today is paying 0.85%. I ask you, who would buy that? The same buyers that would consider this five-year TIPS.

For the TIPS to pay off over the Treasury – the ‘breakeven point’ –  inflation would have to run 2.043% over the next five years. That seems like a reasonable bet, and that is why there will be demand for this five-year TIPS from big-money interests who can’t buy I Bonds or bank CDs.

But small investors? No interest.