The Treasury will announce this tomorrow, but I can give you the scoop on next week’s auction: A new-issue 10-year Treasury Inflation-Protected Security. This will be CUSIP 912828UH1. (Update: Here is the Treasury’s announcement.)
The coupon rate? That will be set at auction, but … come on … it will end up being 0.125%, the lowest coupon rate the Treasury will set on a 10-year TIPS.
Yield to maturity? This is much harder to predict with super accuracy. The closest existing issue now trading on the secondary market matures 2022 Jul 15 and it has a yield to maturity of -0.738%, meaning buyers are accepting a rate of return 0.738% below inflation for 10 years. In theory, this TIPS with a maturity six months longer, ought to have a slightly better rate. So maybe around -0.69%? Just a guess.
Will it set a record low for yield? Good question. It is going to be close. The record low yield for any 9- to 10-year TIPS at auction is -0.750%, for a reissue last year in September. Unless we see a lot of turmoil in the stock market in the next seven days, that record looks pretty safe. In fact, this new issue will probably rise above the -0.720% for a 9-year, 8-month reissue in November 2012.
TIPS failing to set record lows is a nice trend, in my opinion.
Here are the recent auction results for 9- to 10-year TIPS:
Please note …. Just two years ago, on Jan. 20, 2011, a 10-year TIPS auctioned with a yield to maturity of 1.17%. That is 1.17% above inflation, instead of today’s 0.7% below inflation. Two years ago, the Treasury market was ‘normal.’ Today it is ‘abnormal.’ And that means this 10-year TIPS should probably be ignored.
Unless … you really, really believe massive inflation is coming around the corner.
Uh .. about that lurking inflation. Today the Bureau of Labor Statistics announced that headline inflation (CPI-U – the one that matters to TIPS buyers) was unchanged in December. For the year, consumer prices rose only 1.7%, down from 3% in 2011.
That sort of presents a double whammy for recent TIPS buyers, who are seeing very low inflation, but earning a yield well below inflation. Ouch. (When you take a yield below inflation, you tend to cheer for higher inflation, as morbid as that sounds.)
Core inflation, which the Fed wants to keep under 2.5%, rose only 0.1% in December and 1.9% for year year. Here are the monthly increases for headline inflation:
Treasury Inflation-Protected Securities 
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Bill, you can check current values here: http://online.wsj.com/mdc/public/page/2_3020-tips.html?mod=topnav_2_3021 . I suspect that small-investor trades on the secondary market are relatively rare, and these TIPS are lightly traded at the consumer level. Try contacting a bond specialist at any of those brokerage firms; I bet they can help.
So I’m (tentatively) passing up this auction because of the terrible rates. But that leaves a gap in my ladder, and I’d like to fill that gap at some point in the future. I can’t seem to find any information about availability and prices of TIPS in the secondary market. I have accounts at Vanguard, Schwab, and Fidelity — all show price quotes for the 30-yr TIPS maturing in 2032, 2040, 2041, and 2042, but no others. I suspect it is because these are the only ones with a positive yield. So how can I find quotes, bid/ask spreads, and sizes for other issues? Do you know of any source for the trading data?
My thinking is that I’d buy the 1/15/2023 TIPS in a few years when they are yielding something positive, and the price lower. But I don’t know if this strategy will work. If the 10-yr TIPS are actively traded on the secondary market, I’d expect to see a decent daily volume, tight spreads, and large sizes. If they are only seldomly traded they’d show a wide spread and small sizes. If they are only seldomly traded, then I’d likely get clobbered trying to buy this TIPS issue later, and I’d actually be better off paying the premium price now. Not having access to the data makes the decision tough.
David, I write re. your “Unless … you really, really believe massive inflation is coming around the corner.”
This instructive chart shows the CPI-U long-term past — as the % change in CPI-U over the preceding 12 months.
Note the drastic elevation of inflation that started in the mid-1960s and lasted for two decades — it followed a ‘stable’ half-decade-plus period of low/steady inflation!
Talk about ‘steady & recent’ being severely UNindicative of ‘future’! AND, I have read multiple times that the drastic elevation of inflation was INTENTIONAL! (Political pressure to ‘pay off the Vietnam War’.)