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.