The U.S. Treasury just announced that its reissue of a 10-year TIPS auctioned with a record-low yield to maturity of -0.75%. This is CUSIP 912828TE0, which will mature on July 15, 2022.
The previous record low was for this same Treasury Inflation-Protected Security, when it was first auctioned in July with a yield of -0.637%.
Breakeven rate. The 10-year Treasury closed today with a yield of 1.80%, setting the inflation breakeven rate for this TIPS at 2.55%. This means that inflation will have to average 2.55% for the next 10 years for this TIPS to beat a traditional Treasury. This is a near record-high breakeven rate (I think the record is 2.64%) for a 10-year TIPS, as shown in this chart from Michael Ashton’s E-piphany blog:
The higher the breakeven rate, the more expensive the TIPS. Buyers were paying a lot at today’s auction, that is clear. (And I should point out that this same TIPS, when it first auctioned in July, had a much more modest breakeven rate of 2.17%.)
Reaction. The Wall Street Journal cited ‘lukewarm‘ support for this auction, despite the record-low yield. The article notes:
TIPS shield owner from inflation because their payouts increase as the consumer price index rises. But without inflation, buying at a negative yield means the investor will get a smaller amount of money paid back than originally lent out.
Because of newfound inflation concerns, prices on TIPS have soared recently–but perhaps so much so that it made Thursday’s auction a bit too expensive, analysts say.