The Treasury later today will announce it is reopening CUSIP 912828WU0 at auction Nov. 20, creating a 9-year, 8-month Treasury Inflation-Protected Security with a coupon rate of 0.125%. Update: Here’s the announcement. This TIPS has a history:
- It was first auctioned July 24, 2014, with a yield of 0.249% (plus inflation), just below the mark that would have set the coupon rate at 0.250%. So it ended up with the lowest possible coupon rate, 0.125%.
- It was reissued Sept. 18, 2014, with a yield of 0.610%. Buyers at that auction – I was among them – got this TIPS at a big discount – about $95.72 per $100 of value.
Because it trades on the secondary market, we can track the current pricing for this TIPS, from our usual reference sources:
- Bloomberg’s Current Yields chart shows it trading with a yield of 0.43% and a price of about $97.03 per $100 of value.
- Wall Street Journal’s Closing Prices Chart shows it closed yesterday with a yield of 0.416%.
- The Treasury’s Real Yields chart estimates that a full-term 10-year TIPS would auction today with a yield of 0.46% (a full-term TIPS would generate a slightly higher yield, so this looks accurate.)
As I noted, I was a buyer of this TIPS back in September because its yield made a bold move higher in the days before the auction. A few days before the auction, the TIPS was yielding 0.46%, about where it is today. But on Sept. 17, the day before the auction, August inflation came in a -0.2%, setting off deflation fears and roiling the TIPS market.
Yields rose 15 basis points, and I bought. (But I was expecting a yield of about 0.55%, not the resulting 0.610%. I’ll take every basis point I can get.)
I probably won’t be a buyer at next Thursday’s auction, but a lot can happen in a week. The October inflation report will be issued Thursday morning at 8:30 a.m. That should make things interesting.
I’ll be checking in on this auction next Thursday morning, along with the inflation numbers for October. Meanwhile, study this chart of all 9- to 10-year TIPS auctions since 2008:
Treasury Inflation-Protected Securities 
Jimbo, I have seen these anomalies on short-term TIPS before. One factor might be sharply falling gas prices, which could mean negative inflation and therefore an adjustment down in your principal in the TIPS. Another factor could be that this TIPS just had its second to last interest payment, which means only more more is left, in April. Still, nothing to lose.
I’m probably going to pass on this one. I’ve already got this maturity in my TIPS “bond ladder”. And, I don’t like buying this far out when the YTM is under .500%. Of course, the last go around it was also under .500 right before the auction. I ended up buying it on the secondary market right after the auction with a .548 YTM. That cost me $95.96 instead of the auction price of $95.72. Right now, the ask price on the secondary market is $97.54. That’s still under par. But, with a .125% coupon, it’s just not that attractive.
On a totally unrelated note, there’s a TIPS on the secondary market that matures on 4/15/15 that has a YTM of almost 1%. I’m curious how buying one of these would pan-out. This biggest downside is that if the inflation rate takes a nose-dive over the next 5 months, it’s going to be a losing proposition. If it was over 1%, I would be tempted to buy it just for the novelty of being able to say that I actually owned a TIPS with a YTM that high! So far, the best I’ve done was .889%.