The U.S. Treasury just posted the results of its reopening of CUSIP 912810RA8, which auctioned with a yield of 1.33% for the 29-year, 4-month remaining term. Because the coupon rate on this TIPS is 0.625% – set in the original February auction – buyers will be paying about $84.37 for $100 of value, but this includes about $1.33 of inflation adjustment since the original auction on Feb. 28, 2013.
Today’s yield of 1.33% is slightly less than the 1.42% this same TIPS generated in a reissue auction on June 20. TIPS and Treasury yields have been sliding lower since the Federal Reserve backed on tapering its bond-buying stimulus program in September.
Inflation breakeven rate. The nominal 30-year Treasury is trading today at 3.61%, creating an inflation breakeven rate for this TIPS of 2.28%. If inflation averages higher than 2.28% for the next 29 years, this TIPS will outperform the Treasury.
Reaction to the auction results – announced at 1 p.m. – looks positive, based on the move up in the TIP ETF right after the news:
Cynthia Lynn of the Wall Street Journal noted the ‘solid demand’ for this TIPS:
Direct bidders, a group that submits their bids straight to the government, bought 19.1% of the total offering—the most since June 2012. This group of buyers nearly vanished at the last 30-year TIPS sale held in June 2013.
Bloomberg’s Susanne Walker also noted that the auction was well received, even at a time of muted inflation.
“The auction went better than expected,” said Dan Mulholland, head of Treasury trading at BNY Mellon Capital Markets in New York. “There has definitely been a reach for yield and a reach for the long end. There’s a desire for inflation protection with QE in place probably for a little longer than most people expected.”