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.