I’ll be working Thursday (starting at 6 a.m.!) and I won’t be able to post before the auction and I’ll only be able to post the result – minus analysis – after it closes at 1 p.m. Sorry! But here’s a look ahead at the reopening of CUSIP 912828XL9, creating a 9-year, 8-month TIPS with a coupon rate of 0.375%:
- This TIPS, which trades on the secondary market, is currently trading with a real yield of 0.69%, according to Bloomberg’s Current Yields page. This is down about 7 basis points from where it was last week. It is priced at $97.06 per $100 of value, up from $96.39 last week.
- The Wall Street Journal’s Closing Prices page shows that this TIPS – which matures 2025 Jul 15 – closed today with a real yield of 0.673%.
- The Treasury’s Real Yields Curve page estimates that a full-term 10-year TIPS would have yielded 0.71% at the market close today. A full 10-year TIPS should yield slightly higher than one maturing in 9 years, 8 months.
So the yield trend has been working against investors in the last week. Tomorrow morning, before you make your decision, check that Bloomberg link above and also the price of the TIP ETF. The price rose today to $110.08. If it is rising again tomorrow morning, that will indicate a lower yield at auction.
The 10-year inflation breakeven rate is still sitting at a very low 1.58%, making this TIPS attractive against a traditional Treasury. I suspect there could be fairly strong demand for this TIPS, and that could also lower the yield.
I’ll post the result after the close at 1 p.m. Thursday.
Treasury Inflation-Protected Securities 
Thanks so much. Best explanation of TIPS I’ve seen anywhere on the Internet, including TreasuryDirect.
Hey BDR. ‘Par’ is the original issue amount of a TIPS, at least that is how I use the term. If you buy a 10-year TIPS at an originating auction – not a reopening – then you are buying that TIPS at par. If you buy $10,000 of that TIPS, then that TIPS will have $10,000 in par value. From that point your ‘principal’ begins rising and falling with inflation. After 10 years, you are guaranteed to get back at least that $10,000 in par, even if there were 10 years of deflation.
If you buy a TIPS are a reopening auction, you are also buying the additional principal that has been added because of inflation since the TIPS was issued. That additional principal isn’t par and you can lose it if deflation strikes.
At the original auction, the Treasury sets the ‘coupon rate’ to the nearest 1/8% below the ‘yield to maturity.’ The coupon rate is the interest rate the TIPS pays, year after year. A TIPS with principal of $10,000 and a coupon rate of 1% would pay $100 of interest. The coupon rate never changes, even if the TIPS reopens at a later auction. (But the interest you receive each year will go up and down as your principal balance rises and falls with inflation.)
So then, ‘real yield to maturity’ is the amount you will actually earn on that TIPS, above the inflation rate. If you buy a TIPS with a real yield to maturity of 1%, you are going to earn 1% above inflation. The yield can be less or more than the ‘coupon rate.’ If it is higher, the TIPS will be auctioned at a discount. If it is lower, the TIPS will be auctioned at a premium.
That YTM varies every day as the market price of the TIPS changes on the secondary market. But if you are holding to maturity, the yield you got when you purchased the TIPS is the yield you get for its entire term.
Comparing this with an I Bond … If you buy an I Bond with a fixed rate of 0.1%, your real yield to maturity is 0.1%. It won’t ever vary for the life of that bond. The ‘coupon rate’ changes every six months as the interest paid is adjusted to inflation. With an I Bond, the par value keeps rising the entire time, growing with inflation, and can never go down.
Can you please explain, in layman’s terms, the definitions of “par,” “coupon rate,” and “yield to maturity”? If you remember, when I first logged on to this site, I said I had bought a single TIPS, Treasury Bond and Note for $100 each, and swore off them after I saw the puny interest it was earning. I’ve stuck with I Bonds, but am still tempted to buy a TIPS here and there, then move it into a brokerage account, where it will gain (or lose) interest every single day.