Next TIPS auction: 30-year reissue on June 21, 2012

The Treasury announced today that, as expected, it will auction on June 21 a reissue of the 30-year Treasury Inflation-Protected Security, CUSIP 912810QV3. The result will be a 29-year, 8-month maturity. Here is the fact sheet, which points out that the coupon rate is 0.75%, and the final maturity is February 15, 2042.

What can we expect. Back in January, this new issue auctioned at a rate to maturity of 0.777%, very close to the coupon rate. While that rate was the lowest ever for a 30-year TIPS, it looks slightly more attractive today, after months of financial turmoil overseas.  On the secondary market today, this TIPS is trading with a yield of 0.516%, so it looks like next’s week auction will set another record low.

Record lows aren’t a surprise. The rate on a traditional 30-year Treasury closed today at 2.73%, creating a break-even rate for this issue of about 2.2%. Do you think inflation is likely to exceed 2.2% over the next 30 years? If so, this issue might be attractive, at least more attractive than a traditional 30-year Treasury.

The fact is, it is very difficult to find any super-safe investment paying a premium to inflation. (Even I Bonds – my favorite investment at the moment, up to your purchase limit – can only match inflation. But I still recommend buying I Bonds first, then TIPS.) And while inflation is an insignificant threat today, over the next 30 years it could very well ignite into something frightening.

If you have been building a ladder of TIPS, this issue at least gives you a plus to inflation for your overall return. Hard to find that in 2012, and I don’t expect things to get better anytime soon.

If you were a buyer back in January (I wasn’t), I can’t see any problem with adding to your position with this TIPS.

If you were not a buyer then, I can’t see this reissue as attractive.

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2 Responses to Next TIPS auction: 30-year reissue on June 21, 2012

  1. joe says:

    I’ve been laddering TIPS for 10 years now since I finished college. I figure as long as I’m getting a positive realy yield I am okay. I will put some money into this next week and hope for a little better real yield. TIPS are kind of funny. If the real yields drop, it is a good time to sell, then what do you buy. But if TIPS realy yields rise, it is a good time to buy, but not to sell. I guess you can’t buy yesterday’s yield, only todays. In fact, over the past 10 years, nominal wise my TIPS have been the best investment

  2. tipswatch says:

    Joe, yes, yes, and yes. You are right that TIPS have been an incredible investment over the last 10 years; my initial investments were about 13 years ago, and most of those oldies have matured. But in a time of massive market turmoil, TIPS have been stellar. At today’s rates, I’m pretty sure every TIPS still waiting to mature has gained in market value. It is fascinating. That won’t continue forever. It’s important to keep that in mind. I don’t see a turning point in the near future, but it will eventually happen … 1 year, 2 years, 10 years into the future.

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