Checking in on today’s 30-year TIPS auction; any appeal?

The Treasury is auctioning a new 30-year Treasury Inflation-Protected Security on Feb. 19. This is CUSIP 912810RL4 and the coupon rate and yield to maturity will be determined by the auction. Non-competitive bids, like those made through TreasuryDirect, need to be placed by noon. The auction closes at 1 p.m.

A lot has been happening in the Treasury market this month, with 30-year yields rising from rock-bottom levels. Here is where we stand at 10:45 a.m. EST:

  • A 29-year TIPS currently trading on the secondary market today is yielding 0.83% (plus inflation), according to Bloomberg’s Current Yields. That is up 10 basis points from a week ago.
  • That same TIPS closed yesterday at with a yield to maturity of 0.791%, according to the Wall Street Journal’s Closing Prices.
  • The US Treasury estimated yesterday that a full-term 30-year TIPS would yield 0.82%.
  • The TIP ETF, which holds a broad range of maturities, is trading right now at $112.49, down slightly from yesterday’s close.

These numbers are a bit contradictory, but it looks like this TIPS will auction with a yield to maturity of about 0.80% to 0.85%, maybe on the higher side, so say 0.85%. That would result in a coupon rate of 0.750%. Buyers at today’s auction should be cheering for a slightly higher yield, enough to boost the coupon to 0.875%. It’s possible.

Today’s auction shouldn’t threaten the all-time low yield for a full-term 30-year TIPS, which was 0.639% in February 2013. But it doesn’t have much appeal for a small investor as a 30-year commitment, and it could be a very volatile issue for traders. (This TIPS will be reopened in June and October; if yields rise it could be a lot cheaper then.)

Today’s buyers will be the big-money folks – central foreign banks, hedge funds, pension funds, etc. With the 30-year nominal Treasury yielding about 2.70%, you’re looking at an inflation breakeven rate of 1.88% – up 6 basis points from last week but still an attractive number for a TIPS investor.

I will be posting the auction results after 1 p.m., but I might be delayed for an hour or two, because I will be away from a computer this afternoon.

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3 Responses to Checking in on today’s 30-year TIPS auction; any appeal?

  1. Ed says:

    Coupon is 0.75 percent

  2. Pingback: Up next: 30-year TIPS reopens at auction on June 18, 2015 | Treasury Inflation-Protected Securities

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