30-year TIPS auctions with a yield to maturity of 0.842%

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:

30-year TIPSThe 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.”

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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2 Responses to 30-year TIPS auctions with a yield to maturity of 0.842%

  1. tipswatch says:

    Konstantin, it has been a nice rally, pushing the 10-year TIPS yield down to 0.24%, from 0.43% on Feb. 17. But the yield was all the way down to 0.03% on Feb. 1. It’s been a volatile month. But yes, I think inflation fears are beginning to perk up – wage increases appear to be on the rise.

  2. Konstantin says:

    Well done! During the whole week we could see the constant rise of prices for TIPS. What doest it mean – high demand for TIPS as a hedge against inflation or the decline in inflation expectations? What’s the difference between January’s 2015 rise in prices for TIP (amid disinflationary fears) and current one week rally?

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