30-year TIPS reopening auctions with a yield of 1.142%

The Treasury just announced that the reopening of CUSIP 912810RL4 – creating a 29-year, 8-month Treasury Inflation-Protected Security – auctioned with a real yield to maturity of 1.142%.

Since this TIPS was created in February with a coupon rate of 0.75%, buyers at today’s auction got it at a substantial discount – an adjusted price of $90.59 for about $100.47 of value. (This TIPS will have an inflation index of 1.00468 on the closing date of June 30.)

On the reverse side, buyers of this same TIPS back in February have seen its market value fall nearly 10% in only four months — an indication of how volatile long-term TIPS can be.

After the auction, the TIPS ETF took a slight bump up in price, indicating a mildly positive market reaction. It has been trading down all day, however.

Inflation breakeven rate. A 30-year nominal Treasury is trading today with a yield of 3.15%, setting up an inflation breakeven rate of 2.01% for this TIPS. That means if inflation averages higher than 2.01% over the next 30 years, this TIPS will outperform an nominal Treasury.

Back in February, this same TIPS auctioned with a breakeven rate of 1.89% — indicating that the market’s inflation expectations are rising. Here is a long-term chart of 30-year breakevens, showing that 2.0% remains on the low side of the scale:

30-year breakevens

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