The Treasury site is suffering hiccups today, but it has finally posted results for the $13 billion reissue of CUSIP 912828VM9, creating a 9-year 8-month Treasury Inflation-Protected Security. It auctioned with a yield of 0.560%, indicating decent demand for this TIPS. View the Treasury announcement.
After opening down, the overall TIPS markets steadily improved through the morning. Around 10 a.m., this same TIPS was selling on the secondary market with a yield of 0.62% and it closed yesterday at 0.587%. The final yield of 0.560% indicates demand was good for today’s auction.
This was the highest yield for any 9- or 10-year TIPS auction since July 2011, but just barely, because this same TIPS was reissued on September 19, 2013 with a yield to maturity of 0.5%.
Because this TIPS carries its original coupon rate of 0.375%, today’s buyers are getting it at a discount, with an adjusted price of about $98.86, which includes about 60 cents of inflation-adjusted principal.
Inflation breakeven rate. The 10-year nominal Treasury is currently trading at 2.79%, creating an inflation breakeven rate for this TIPS of 2.23%. That means this TIPS will outperform a traditional 10-year Treasury if inflation – currently running at 1.0% – averages more than 2.23% over the next 10 years.
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