The Treasury just announced that its auction of CUSIP 912828H45 – a new 10-year Treasury Inflation-Protected Security – resulted in a yield to maturity of 0.315% and a coupon rate of 0.250%.
Buyers at the auction got a much better yield than looked likely earlier Thursday, when a similar TIPS was trading on the secondary market with a yield of just 0.18%. Later in the morning, however, TIPS yields began climbing. As the auction was closing at 1 p.m., Bloomberg’s survey of dealers predicted a yield of 0.346%.
Because the Treasury sets the coupon rate one notch below the yield, buyers at today’s auction are getting this TIPS at a slight discount to par, about $99.02 per $100 of value.
Inflation breakeven rate. With the 10-year nominal Treasury currently trading at 1.89%, this TIPS is getting a breakeven rate of 1.57%, which is very low by historic standards. This indicates the markets are pricing in very low inflation over the next 10 years. Generally, a breakeven rate below 2% indicates that a 10-year TIPS is ‘cheap’ against a nominal Treasury of the same term. This rate is among the lowest seen in the last five years:
Reaction to the auction. TIPS yields were fluctuating Thursday, first dropping and then rising. After the auction, the TIP market is reacting well. This chart shows the day’s activity in the TIP ETF, which holds a broad range of maturities. It started the day up (with yields down) and then moved negative as yields rose. After the auction, the trend was back up, which usually indicates a positive reaction: