30-year TIPS reissue auctions at record-low 0.479%

The Treasury just announced that the $7 billion reissue of CUSIP 912810QV3 — creating a 29-year, 4-month TIPS — auctioned with a yield to maturity of 0.479%, a record low for any 30-year issue or reissue. (The principal balance of a TIPS also rises at the rate of inflation, so the 0.4.79% is on top of inflation.)

Here’s the Treasury’s announcement of results.

The previous record low was for this same TIPS when it was reissued on June 21 with a yield to maturity of 0.520%.

Reaction to the auction. The yield ended up inching up – a good thing for buyers – from last week’s secondary market yield of 0.371%. The Wall Street Journal is reporting the auction had ‘solid overall demand’:

The willingness to pay up for long-dated inflation protection now speaks to the fact that all the monetary stimulus being conducted by major central banks–funneling loads of cheap money into the global economy–is making investors nervous about price stability in the future.

Breakeven rate. Since the 30-year traditional Treasury closed today at 3.02%, this TIPS ends up having an inflation breakeven rate of 2.54%, which is fairly high. That means buyers are expecting inflation to average 2.54% over 30 years, which isn’t such a bad bet when a 30-year traditional Treasury is paying just 3.02%. From a Bloomberg report:

“The auction went well — 30-year break-evens are cheap relative to the rest of the curve, and that makes 30-year TIPS look more attractive,” said Richard Gilhooly, an interest-rate strategist at Toronto-Dominion Bank (TD)’s TD Securities unit in New York. “There is still demand for inflation protection given the Fed’s activities. And that demand should grow, resulting in higher break-evens.”

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