What was looking like a fairly attractive auction of a new 5-year Treasury Inflation-Protected Security has lost a little of its luster in the last week, but this one is still worth a look. The Treasury announced Thursday it will auction CUSIP 912828C99 on April 17, 2014, with the coupon rate and yield to maturity to be set at auction.

What can we expect? The coupon rate will almost certainly be 0.125%, the same rate for the last nine 4-to 5-year TIPS auctions. That streak was set because 4- to 5-year TIPS have been yielding negative to inflation almost every day since late September 2010. The lowest coupon rate the Treasury will set on a TIPS is 0.125%, and that means buyers have to ‘pay up’ when an auction results in a negative yield.

According to the Treasury’s Daily Yield Curve tables, a 5-year TIPS is currently yielding -0.10%, down from year-to-date high of 0.11% set on April 3. So the yield has dropped 21 basis points in a eight days – not a good trend heading into an auction.

Why the drop in yield? This one is a ‘flight to safety’ — Treasurys always benefit when the stock market is in turmoil. A nominal 5-year Treasury is yielding 1.59%, down 21 basis points in nine days. During that same time, the S&P 500 stock index is down 3.03%.

Why is the stock market weakening? Could it be that it has had a remarkable run-up for more than five years and some high-risk stocks were getting very bubbly? Could be, but I have no idea what drives the stock market and if this trend will continue.

If it does continue, though, we can forecast that we are in for a short-term decline in TIPS yields heading into next Thursday’s auction.

Looking for yield. At the beginning of April, it looked like we would get a 5-year TIPS auction with a positive yield, and that would have been worth a celebration. It’s been four years since we’ve seen that. At the least, it would have meant buyers would get a 5-year TIPS at around par. That doesn’t look likely now. Buyers can expect to pay $101.50 to 102.00, at least, for $100 of value at next week’s auction.

And it isn’t a good thing that a TIPS maturing 2019 Jul 15 is currently trading at -0.387%.

If this TIPS does go off at -0.10%, it would be the highest yield for any 4- to 5-year TIPS in four years, since an April 2010 auction netted a yield of 0.55%. But it looks more likely that the recent high of -0.127%, set in August 2013, will hold until the next reissue. I was a buyer at that auction, but I will probably pass on this one.

Here are the numbers for recent 4- to 5-year TIPS auctions:

The I Bond alternative. I Bonds are currently paying a fixed rate of 0.2% plus inflation and can be sold after five years with no penalty. Plus, federal taxes are deferred until you sell the I Bond. Clearly, I Bonds are a better investment than a 5-year TIPS.

If you haven’t bought I Bonds this year, you are probably holding out to see where the fixed rate is headed in the May 1 adjustment. If you absolutely, for certain want to lock in the 0.2% fixed rate, you need to buy before May 1. If you think the fixed rate will be going up, you should hold off buying until after May 1.

With a 10-year TIPS currently yielding 0.51%, I can’t see the Treasury raising the fixed rate higher than 0.2%. And with inflation running at extremely low levels, the Treasury could kill demand for I Bonds if it lowers the fixed rate back to 0.0%, where it was for several years.

So my wild guess is that the fixed rate will remain at 0.2%. The Treasury can sometimes surprise you though – like it did last November when it raised the fixed rate to 0.2% for no apparent reason.

By the way, I bought my I Bond allocation back in February. I’m not much of gambler.