Later today, the U.S. Treasury will formally announce it will reopen CUSIP 912828B25, a 10-year Treasury Inflation-Protected Security, in an auction on Thursday, March 20. This TIPS originally auctioned Jan. 23, 2014, with a coupon rate of 0.625% and a yield to maturity of 0.661%, plus inflation.
So, what can we expect from this 9-year, 10-month TIPS? If the auction were today, the yield to maturity might be around 0.55%, a drop of 7 basis points since the January auction. That means buyers would have to pay up a little to snag this TIPS, around $100.30 for $100 of value.
But a lot can happen in a week. Here are some data sources to check before the auction:
- The Treasury’s Daily Real Yield Curve Rates, which right now are indicating a yield of 0.54% for a 10-year TIPS.
- Bloomberg’s Current Yields, which reflects current trading but can be a little misleading. At this moment, it shows CUSIP 912828B25 trading at 0.55%.
- The Wall Street Journal’s closing price list for TIPS, which shows that the TIPS maturing 2024 Jan 15 closed Wednesday at 0.523%.
- I’d also recommend using the Treasury’s Yield Curve site to track the yield of the nominal 10-year Treasury, which is currently at 2.73%. The TIPS yield is likely to rise and fall with that number over the next week.
If next Thursday’s auction yield fails to exceed 0.661%, it will break a string of eight consecutive 9- or 10-year TIPS auctions that have resulted in a higher yield. Here is a history of 10-year TIPS auctions going back to 2009:
Although bond yields were expected to rise in 2014, the opposite has happened, thanks to some shakiness in the stock market and worries over Russia’s incursion into Crimea. All Treasurys, including TIPS, benefit with the ‘flight to safety’ that inevitably follows stock-market hiccups. The TIP ETF is up almost 2% since Jan. 1, even as inflation remains tame.
It’s also significant that TIPS have been out-performing Treasuries of similar terms. Take a look at this year-to-date chart for the TIP ETF versus IEI, an ETF holding intermediate-term Treasuries and having a similar duration:
If next Thursday’s auction goes off at 0.55%, it would create an inflation breakeven rate of 2.18%, versus 2.12% when the TIPS first auctioned in January. Still on the relatively cheap side, but keep an eye on the 10-year Treasury over the next week.