Checking in on today’s 10-year TIPS auction

Noncompetitive bids need to be placed by noon today if you are interested in investing in CUSIP 912828XL9, a new 10-year Treasury Inflation-Protected Security. This is a decently attractive offering, so it’s worth a look. The coupon rate and real yield to maturity (after inflation) will be set at the auction.

What can we say at 9:45 a.m. on auction day?

  • The Treasury’s Real Yields Curve page estimates that a full-term 10-year TIPS would have closed yesterday with a yield of 0.53%. If that yield holds at today’s auction, this TIPS would get a coupon rate of 0.50% and adjusted price should be very close to the par value. A yield below 0.50% would result in a coupon rate of 0.375%, and this TIPS might be priced at a slight discount.
  • The Wall Street Journal’s Closing Prices page shows that a TIPS maturing in January 2015 – the closest to a full-term 10-year on the secondary market – closed yesterday with a yield to maturity of 0.482%.
  • Bloomberg’s Current Prices page shows that same TIPS trading this morning with a yield of 0.51%.
  • The TIP ETF is trading down (slightly) this morning, just after the market opening. That indicates a slight rise in yields. If it stays negative, this new TIPS will likely come in with a yield above 0.50%.

The 10-year nominal Treasury is trading this morning at 2.33%, setting up a decent inflation breakeven rate of about 1.8% — meaning that inflation averages more than 1.8% over the next 10 years, this TIPS will outperform a nominal Treasury.

Yes or no? I’ve decided to make a small investment in this TIPS, mainly to fill a 2025 spot in my TIPS ladder. Because it’s a small investment, if yields rise I can add to it later this year when the TIPS reopens in September and November.

I’ll be posting again with the auction results after 1 p.m.

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One Response to Checking in on today’s 10-year TIPS auction

  1. Raymond A. says:

    Thanks for your very helpful analysis of these securities.

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