• Update: 5-year TIPS auctions with a yield of -0.213%

The U.S. Treasury will announce results of its auction of a new 5-year Treasury Inflation-Protected Security, CUSIP 912828C99, just after 11:30 a.m. Non-competitive bids have to be placed by 11 a.m., if you are buying at TreasuryDirect. The times are earlier for this auction because of the Easter weekend.

What to expect. This TIPS has been a hard one to call, with possible yields falling all over the place. A few weeks ago, it looked like this TIPS would generate a positive yield to maturity (plus inflation), but that looks unlikely now. The coupon rate will almost certainly be 0.125%, the same rate for the last nine 4-to 5-year TIPS auctions, because that is the lowest coupon rate the Treasury allows on TIPS.

Combine a negative yield at auction with a coupon rate of 0.125% and you get an above-par price for buyers at today’s auction, possibly $102 or more for $100 of value.

• The Treasury’s chart of Daily Treasury Real Yield Curve Rates is currently showing a 5-year TIPS yielding -0.06%. This is usually my preferred source for new issues, but the number looks a little suspect because …
• Bloomberg’s Current Yields chart this morning is showing a yield of -0.50% for the newest 5-year TIPS currently trading. But this TIPS was issued a year ago, so it is actually a 4-year TIPS and that skews the number. You’d expect a shorter-maturity TIPS to yield less, especially in a time of very low inflation.
• The Wall Street Journal’s closing prices chart shows TIPS bracketing the maturity date of this new TIPS yielding -0.401% and -0.365%, and you have to go out to a maturity of July 2020 to find a yield of -0.118%

So, at this point, the Treasury seems to be predicting one number (-0.06%) and the market points to another (maybe around -0.385%). That’s a 32-basis point swing – an unusual amount of uncertainty.

The 5-year nominal Treasury closed Wednesday at 1.67%, setting up a 5-year inflation breakeven point of 1.73% (if you trust Treasury’s low prediction) or 2.05% (if you trust the market numbers).

If this TIPS goes off with a yield of -0.06%, it will be a pretty good bargain for buyers. We’ll see what happens at 11:30 a.m.