30-year TIPS reopening auctions with a yield of 0.985%

The Treasury just announced that the reopening of  CUSIP 912810RF7 – a 29-year 4-month Treasury Inflation-Protected Security – auctioned with a yield to maturity of 0.985%, a bit higher than looked likely this morning.

This TIPS – which first auctioned on Feb. 20 with a yield of 1.495% – carries a coupon rate of 1.375%, so today’s buyers are paying a premium. The adjusted cost is $112.17 per $100 of value, but this includes about 2% of accrued inflation since the original issue.

This is the first 29- to 30-year TIPS auction since February 2013 to come in with a yield under 1%.

Inflation breakeven rate. With a 30-year nominal Treasury currently yielding 3.05%, this TIPS has an inflation breakeven rate of 2.065%, making it very attractive against a traditional Treasury. It means that if inflation averages more than 2.065% over the next 30 years, this TIPS will outperform the nominal Treasury.

TIPS yields had been rising heading into the auction, and CUSIP 912810RF7 closed Wednesday with a yield of 0.922%. So today’s buyers gained from the market weakness (TIPS prices fall when yields rise). Here’s a look at the immediate reaction in the TIP ETF, which looks a bit negative:

TIP Oct. 23

Reaction to the auction

Despite the slight boost in expected yield, Bloomberg reports strong demand for this TIPS reopening, at least from foreign central banks, who are typically ‘indirect bidders’:

Indirect bidders bought 64.5 percent of the $7 billion in Treasury Inflation Protected Securities yesterday, compared with the average of 46.7 percent at the past 10 auctions. … The transaction was rated a “four” by seven primary dealers, based on a scale of one through five, with one being a failed auction and five judging the results as outstanding.

The Wall Street Journal managed to write an entire article about weakness in the Treasury markets on Thursday without mentioning the TIPS auction. TIPS don’t get a lot of respect, I realize, but the WSJ did manage to give us this Thursday: ‘Janus Capital makes room for Bill Gross, his sunglasses‘:

Wall Street wants to know how Gross is doing at his new digs. So far, the feedback is hugely positive. Janus CEO Dick Weil described Gross as having, “a positive halo effect for the fixed-income team, but also for the whole firm.”

Well, good for Bill Gross and Janus. Until the next temper tantrum.


About Tipswatch

Author of Tipswatch.com blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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3 Responses to 30-year TIPS reopening auctions with a yield of 0.985%

  1. Mike says:

    I just discovered this blog. Looks like a gold mine of information. Thank you. I am currently learning bonds. I actually prefer bonds to other investments. Maybe it’s the conservative in me, but when I have more money to risk, I suppose I will buy riskier investments. Until then, IRA(s) and bonds and other tax advantaged investments. I think a lot of people forget about the power of compounding. I am a huge fan of bonds based upon the little information I know of them. Thank you for this blog.

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