A new 5-year Treasury Inflation-Protected Security – CUSIP 912828K33 – will be created today, with the coupon rate and real yield to maturity determined at auction. Non-competitive bids, like those placed through Treasury Direct, close at noon; competitive bids continue until 1 p.m. when the auction closes.

At 10:07 a.m., here is what we know:

• The coupon rate is going to be 0.125%, because this TIPS will auction with a negative yield to maturity, and 0.125% is the lowest coupon rate the Treasury allows.
• After yesterday’s close, the Treasury’s Real Yield Curve page estimated that a full-term 5-year TIPS would yield -0.19%. This should be the starting point for today’s auction, since the most recent 5-year TIPS on the secondary market has only four years remaining.
• That said, Bloomberg’s Current Yields page shows that 4-year TIPS trading today with a real yield to maturity of -0.51%. That’s substantially below the Treasury’s estimate.
• The Wall Street Journal’s TIPS Closing Yields page shows that 4-year TIPS, which matures in April 2019, closed yesterday with a yield of -0.470%. There is also a TIPS maturing in July 2020 with a yield of -0.448%, and one maturing in January 2020 with a yield of -0.428%.
• Finally, the TIP ETF – which holds a broad range of maturities – is trading up very slightly this morning at $114.41, indicating that yields could be dipping, but only slightly.

These numbers would lead me to guess that today’s auction will result in a yield below -0.20%. Will the number be closer to -0.45% or even -0.50%? Seems possible. That’s a pretty wide span of probabilities; I would guess a yield near -0.45% looks likely.

Since the coupon rate will be set at 0.125% on this new issue, buyers at today’s auction will have to pay up to generate a negative yield to maturity. If the yield comes in around -0.21%, the price will be about $101.85 per $100 of value. If it falls to -0.50%, the price will be closer to $103 per $100 of value, as a rough guideline.

I will be posting an update after the auction closes at 1 p.m., and then adding market reaction later in the afternoon.