It’s been a sorry year for buy-and-hold investors in Treasury Inflation-Protected Securities, with yields plummeting to ever-lower all-time records. That means TIPS – like all Treasuries – are very expensive and produce little income. There are currently 35 TIPS issues trading on the secondary market, and 32 of those have negative-to-inflation yields. You have to go all the way out to an issue maturing in February 2040 to get a positive yield, 0.256% plus inflation.
On the other hand, TIPS traders and mutual fund holders have had a decent year. Even though the TIP ETF took a dip after the Federal Reserve announced QE4 this month, its net asset value is up about 4.7% for the year.
Just like last year, TIPS buyers found their best purchases early in the year, as TIPS yields declined steadily. Here’s a recap of the year’s auctions:
10 year TIPS, CUSIP 912828SA9
First auctioned: Jan. 19, 2012, with a yield-to-maturity of -0.046%. This was the first 10-year TIPS in history to auction with a negative yield, but the rate was expected to be lower just before the auction. So this one ended up being the best buy of the year.
Reissued: March 22, 2012, with a yield to maturity of -0.089%. Today, this still looks attractive.
Reissued: May 17, 2012, with a yield to maturity of -0.391%.
Hard to believe this issue currently trades at -0.841%, meaning the January buyers are sitting on a gain of more than 8%.
3o-year TIPS, CUSIP 912810QV3
First auctioned: Feb. 16, 2012, with a yield to maturity of 0.770%. I viewed this issue positively back in February, despite the long-term commitment. It actually went off at a discount to its 0.75% coupon rate (that’s a rarity in TIPS auctions these days).
Reissued: June 21, 2012, with a yield to maturity of 0.520%.
Reissued: October 18, 2012, with a yield to maturity of 0.479%. Each of these auctions set a record low for a 30-year TIPS.
Today this issue trades on a secondary market at 0.335%, meaning the original buyers are sitting on a capital gain of more than 10% for an issue they bought at a discount.
5-year TIPS, CUSIP 912828SQ4
First auctioned: April 14, 2012, with a yield to maturity of -1.080%. Although I have tried to warm up to short-term TIPS, I just can’t accept a yield more than 1% below inflation. Back in April, I issued a call to buy I Bonds instead, which was probably my wisest advice of the year.
Reissued: Aug. 23, 2012, with a yield to maturity of -1.286%.
Reissued: Dec. 20, 2012, with a yield to maturity of -1.496%. Each of these auctions set a record low for a 5-year TIPS.
This issue currently trades on the secondary market at -1.485%, about where it auctioned 10 days ago.
10-year TIPS, CUSIP 912828TE0
First auctioned: July 31, 2012, with a yield to maturity of -0.637%. By mid-year, TIPS yields were nearly hitting rock bottom. It’s significant that they have been pretty much holding at these very low levels for six months — despite the ‘fiscal cliff’ scare and the Fed’s commitment to QE4.
Reissued: Sept, 20, 2012, with a yield to maturity of -0.750%.
Reissued: Nov. 21, 2012, with a yield to maturity of -0.720%. This auction was a milestone because the TIPS yield didn’t set a record low — it’s been many months since that happened.
This issue currently trades on the secondary market at -0.787%, a bit lower but still pretty close to the original auction price.
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David, Thank you. My personal purpose for the chart I described is input for deciding which TIPS maturity to buy, if any.
Ed, I keep an Excel tally of my TIPS holdings and their current inflation-adjusted value (Treasury Direct doesn’t provide this, strangely enough). Since I am a buy-and-holder, I don’t really care about the current market value or even the current yield. I just want to know what my current principal balance is — updated twice a year.
Ed, that is the page I use for TIPS pricing. It should update early this evening, or you can get back to Dec. 31 with the historical data feature.
David, Thank you. Using yields from here
I aim to make a chart of all TIPS yields vs. maturity date. I can do this manually, by cut and paste into an EXCEL spreadsheet … Any way easier …? Anybody do it already …?
David, For IRS purposes, EOY pricings of TIPS are available from the 12/31/2012 table here
Any other/better source? Thanks..