Checking in on Thursday’s 30-year TIPS reopening

I’ll be working tomorrow morning – I usually have Thursdays off – so I won’t be able to post an update then. After the auction closes, I’ll post the result, but I won’t be able to post much commentary.

We’re looking at the reopening of CUSIP 912810RL4, creating a 29-year, 4-month Treasury Inflation Protected Security. If you are interested, noncompetitive bids need to be placed by noon. The auction closes at 1 p.m. Thursday.

The TIPS carries a coupon rate of 0.750%, set at the original auction on Feb. 19, 2015. Because tomorrow’s auctioned yield to maturity will be higher, buyers will be getting it at a sizable discount. This TIPS is trading right now on the secondary market, so we can get an idea where it stands.

  •  Bloomberg’s Current Yields page shows it with a real yield (after inflation) to maturity of 1.23% and a price of about $88.16 for $100 of value.
  • The Wall Street Journal’s Closing Prices page show it closing today with a real yield of 1.220% and a bid/asked spread of $87.97 to $88.44. This TIPS is the last one listed on that page, maturing 2045 Feb 15.
  • The Treasury’s Real Yields Curve page estimates that a full-term 30-year TIPS on Tuesday would have had a real yield of 1.26%. Keep in mind that a full-term 30-year TIPS should yield slightly higher than a 29-year, 4-month TIPS. (Wednesday’s number will be posted in a few hours.)

If the auction were taking place this very minute (3:40 pm Wednesday) it would probably generate a real yield around 1.23% and a price near $88.16. But a lot can change before 1 p.m. Thursday. If this TIPS interests you, I suggest keeping an eye on those links above, plus the current price of the TIP ETF. If the price of that ETF is falling sharply tomorrow, that indicates a higher yield is likely. If it is rising sharply, that indicates a lower yield is likely. If it is neutral, the Bloomberg and Wall Street Journal links should provide a pretty good guide.

The inflation adjustment. Also, keep in mind that this TIPS will have an inflation index of 1.01213% on Oct. 30, the settlement date. That means investors will be buying an extra 1.2% of inflation adjustment, and that will raise the cost. The auctioned yield remains the same, you will just buy a little extra principal.

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One Response to Checking in on Thursday’s 30-year TIPS reopening

  1. maynardGkeynes says:

    For buy and hold investors like myself, the yields on the off-the-run TIPS might be a better deal anyway, since you get the liquidity premium. Also, while I used to buy only at the auctions to avoid being ripped off by a broker on the spread, the spreads on Vanguard’s bond platform are so tight now, that it really doesn’t matter anymore. In addition, I have always gotten a narrower spread than what the screen showed when I put in the order. Vanguard’s bond desk is terrific — they are obviously shopping the bid for you; moreover, they put it in as a limit order, which is something you can’t do at the auctions. No unpleasant surprises on the yield.

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