The Treasury just completed its auction of a new 5-year Treasury Inflation-Protected security, which resulted in a yield to maturity of -1.080%.
CUSIP 912828SQ4 has a coupon rate of 0.125%, meaning that today’s buyers had to pay up for this issue – $106.38 per $100 of value.
This is the lowest rate ever for a new or reissue of a 5-year TIPS. The previous low was -0.877% for an auction on Dec. 15, 2011.
Reaction to the auction, from Bloomberg:
“There is still significant demand for inflation protection given the accommodative Fed,” said Michael Pond, co- head of interest-rate strategy in New York at Barclays Plc, one of Fed’s 21 primary dealers that are required to bid at U.S. auctions. “For the largest-ever notional tips auction at the lowest-ever real yield, the Treasury has to be very pleased with these results.”
Bloomberg points out that the auction set a 5-year breakeven point of 1.93%, versus a 5-year Treasury trading today at 0.85%. That is …
down from a year-to-date high of 2.22 on March 14. The average during the past decade is 1.94 percentage points.
I think the breakeven rate on a 5-year is pretty distorted, since you can get a 5-year insured bank CD today at about 1.75%, pushing the breakeven point to 2.83%, higher than the current 12-month rate of inflation of 2.7%, even with gas prices soaring.
Nevertheless, I think the Treasury has to be very happy about this record-low yield, and buyers should just shrug and accept a super-safe investment that is protected against an unexpected surge in inflation.