Checking in on today’s 5-year TIPS reopening

Let’s take a quick look at today’s auction of CUSIP 912828K33, creating a 4-year, 8-month Treasury Inflation-Protected security. This TIPS – originally issued in April – carries a coupon rate of 0.125%.

Because this TIPS currently trades in the secondary market, we can get a decent idea of its market value today, as of 10 a.m.:

  • The Wall Street Journal’s Closing Prices page shows it ended Wednesday with a real yield to maturity of 0.248% and a price of about $99.44 per $100 of current value.
  • The real time quote this morning from Bloomberg’s Government Bonds page shows it yielding 0.30% and a price of $99.17.
  • The Treasury’s Real Yields Curve page estimates that a full-term 5-year TIPS would yield 0.33%. (A full-term TIPS should yield slightly higher than a shorter-term issue.)
  • The TIP ETF – which holds a broad range of maturities – is trading slightly lower this morning, indicating a slight increase in yields.

Whirl up this data and you get the idea this TIPS could go off with a real yield (after inflation) to maturity of somewhere around 0.30%. That’s 63 basis points higher than the -0.335% yield generated at the creation auction on April 27.

If your TIPS ladder could use a rung maturing in April 2020, I think this looks like a reasonable investment. It’s only a 4-year, 8-month commitment.

Keep in mind that this TIPS will have an index ratio of 1.01892 on Aug. 31, so investors will be buying about 1.9% of accrued principal at this auction. That will push the adjusted price higher.

Noncompetitive bids need to be placed by noon. I will be reporting on the results when the auction closes at 1 p.m.

 

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