CUSIP 912810RL4 will reopen at auction today, creating a 29-year, 8-month Treasury Inflation-Protected Security. This TIPS has a coupon rate of 0.75%, which was set at the originating auction in February. Noncompetitive bids must be placed by noon; the auction closes at 1 p.m.
Here is how it is shaping up:
- Bloomberg’ Current Yields page shows this TIPS trading today with a yield of 1.14%, about where it was a week ago, and with a price of $90.26 per $100 of value. It is going at a discount because the current yield is higher than the coupon rate of 0.75%.
- The Wall Street Journal’s Closing Prices page shows this TIPS closed Wednesday with a yield of 1.051% and a price around $91.88.
- The Treasury’s Real Yields Curve page estimated that a full-term 30-year TIPS would yield 1.09% at the close Wednesday.
- The TIPS ETF – which holds a broad range of maturities – is trading at 10:30 a.m. at $112.01 this morning, down about 0.5% since Wednesday’s close. This indicates that TIPS yields are rising today, explaining the higher yield indicated by Bloomberg’s real-time quote.
So the market seems to be indicating a yield somewhere near 1.14% and an unadjusted price of about $90.26 per $100 of value. Because this TIPS will have an inflation index of 1.00468 on the June 30 closing date, the adjusted price will be a little higher.
Inflation breakeven rate. With the 30-year nominal Treasury currently yielding 3.13%, the inflation breakeven rate for this TIPS is right at 2% – still low but up from 1.73% in late January. It is low enough to make this TIPS attractive to big money buyers versus a nominal Treasury? Possibly.
Yes or no? I won’t be a buyer, but I am not high on adding 30-year TIPS into my buy-and-hold portfolio. I could (possibly) get interested if yields reach historically ‘normal’ levels of 2% or higher. But not today.
I’ll be posting an update after the auction closes at 1 p.m.