A new 30-year Treasury Inflation-Protected Security auctioned today with a coupon rate of 0.750% and a yield to maturity of 0.842%, the Treasury announced.
This is the only 30-year TIPS to be created in 2015, but the Treasury will reopen it in June and October auctions. The real yield (after inflation) of 0.842% was far below last year’s 30-year TIPS, which auctioned on Feb. 20, 2014, with a yield of 1.495% and a coupon rate of 1.375%. Today’s TIPS – CUSIP 912810RL4 – generated the lowest yield for any 29- to 30-year TIPS auction since February 2013.
At creation auctions, the coupon rate of a TIPS is always set to the nearest 1/8% below the yield. That means buyers at today’s auction are getting the TIPS at an adjusted price of $97.33 per $100 of value. The inflation index on this TIPS starts at 0.99756 because of deflation (-0.57%) back in December when the index was set.
Inflation breakeven rate. With a 30-year nominal Treasury trading today at 2.74%, we get an inflation breakeven rate of 1.89%. That means this new TIPS will outperform a 30-year Treasury if inflation averages more then 1.89% over the next 30 years. A number that low makes this TIPS ‘cheap’ versus a nominal Treasury.
Reaction to the auction. The yield was in line with expectations, and the market seems to be reacting positively in the minutes after the 1 p.m. close of the auction. Here is the 1-day chart for the TIP ETF, which holds a broad range of maturities:
The Reuters report on the auction noted ‘heavy investor demand’ for this new TIPS:
“This is the most aggressively bid new issue 30-year TIPS auction since February 2011,” Thomas Simons, money market strategist at Jefferies & Co. wrote in a note about the auction.
“Fund managers, foreign central banks and other indirect bidders bought 69.04 percent of the latest 30-year TIPS supply. This was their largest share at a 30-year TIPS auction since data were available going back to February 2010, Treasury data showed.”