4-year, 4-month TIPS auctions at a record-low -1.496%

Yes, I knew there was a TIPS auction today, and actually thought about it around noon. But then I pretty much erased it from my mind. I mean, who really cares? Who is actually buying this thing?

Well, today’s auction for CUSIP 912828SQ4, effectively a 4-year, 4-month Treasury Inflation-Protected Security, resulted in a yield to maturity of -1.496%, meaning that today’s buyers are accepting a return 1.496% below the rate of inflation for the next five years.

Need I point out that inflation for the last 12 months is currently running at 1.8%? Indicating a current return for this TIPS of about 0.304%?

How … exciting … Well we did set another record low yield for any 4- to 5-year TIPS at auction. The previous low was -1.286% for this same TIPS when it was reissued in August.

But really, this was a very unattractive issue, because even if inflation perks up in the future, it will probably miss most of this 4-year, 4-month term. The current breakeven rate for a 5-year TIPS is 1.91%, with the 5-year nominal Treasury yielding 0.77%.

Yes, inflation will probably average more than 1.91% over the next five years, so this TIPS beats a nominal Treasury. But if you look at a super-safe insured 5-year bank CD, you can get 1.8% right now, pushing the breakeven inflation rate up to a much-more-iffy 3.3%.

Why would anyone buy this TIPS?

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One Response to 4-year, 4-month TIPS auctions at a record-low -1.496%

  1. Pingback: Can a TIPS investment go bad? Yes, it can. An ugly example. | Treasury Inflation-Protected Securities

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