Improving yield on Thursday’s 30-year TIPS auction?

The likely yield on the reissue of a 30-year TIPS has been creeping up this week, making this 29-year 4-month TIPS at least slightly more attractive.  If you have been on the fence about this one, you should at least take a look.

It is CUSIP 912810QV3 and carries a coupon rate of 0.75%. This TIPS, which trades on the secondary market, closed Wednesday with a yield to maturity of  0.478%. This is up fairly sharply since last Wednesday, when it closed at 0.371%. The resulting market price for $100 of value has dropped from $110.17 to $107.14. That is almost a 3% drop in a week.

(A buyer of this TIPS will pay more than the principal value because he will get a coupon interest rate of 0.75% for 30 years, on principal that rises with the rate of inflation. So when you see a yield of 0.478%, that means the buyer – after paying up – actually gets 0.478% plus the rate of inflation.)

Even if Thursday’s auction – which closes at 1 p.m. – ends up with a yield of 0.5%, that would be a record low for any 30-year TIPS issue or reissue. The current record is for this same TIPS when it was reissued on June 21 with a yield to maturity of 0.520%.

Breakeven rate? The traditional 30-year Treasury closed today at 2.98%, meaning a TIPS yield of 0.478% results in a 30-year breakeven rate of 2.502%. That is up a bit from last Friday, when it was 2.45% and it is a negative for buyers of this issue.

Oh well. Let’s see what happens Thursday.

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2 Responses to Improving yield on Thursday’s 30-year TIPS auction?

  1. John says:

    https://personal.vanguard.com/us/funds/snapshot?FundId=3365&FundIntExt=INT#hist=tab%3A0

    Would you care to comment on the new line up of Vanguard Short Term TIPs funds?
    Thank you

  2. tipswatch says:

    John, I did write on the short-term TIPS fund a while back, but you are right, now that is open to purchases I need to do an update. Here’s the earlier piece

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