The Treasury will be creating CUSIP 912828N71 – a new 10-year Treasury Inflation-Protected Security – at an auction that closes at noon for non-competitive bids and 1 p.m. for competitive bids.

Here’s where we stand at 9:45 a.m. Thursday:

• I am going to use yesterday’s Real Yields Curve estimate from the US Treasury as my baseline for this issue. It closed Wednesday at a real yield of 0.69% – exactly where it started the year. This is an estimate of the yield of a full-term 10-year TIPS.
• However, Bloomberg’s Current Yields page – which gives real-time quotes – shows a 9-year, 6-month TIPS currently yielding 0.62%, which is pretty wide spread from the Treasury number.
• The Wall Street Journal’s Closing Prices page shows that TIPS – which matures in July 2025 – closed yesterday with a yield of 0.643%.
• The TIP ETF just opened higher at $110.32 and has since risen to $110.42 This indicates that TIPS yields are on the decline. Keep an eye on this number if you are investing in this TIPS.
• The stock market has opened slightly lower – not a major move.

Tough call on where this yield will land. I’d guess at this point it will be below yesterday’s estimate of 0.69% and above the real-time yield of 0.62% on a shorter-term TIPS. Splitting the difference gives you a yield around 0.65% or 0.66%, which would be about where a 9-year, 8-month TIPS reopened at auction last November.

Hard to figure the demand on this issue. If the stock market decline is signalling a recession, that might mean lower interest rates and possible deflation in the future. Would a traditional Treasury be more attractive? But it is yielding only about 2.01% right now – 23 basis points lower than the beginning of the year. That is creating an ultra-low inflation breakeven rate of around 1.36% for this TIPS.

The market is betting on very low inflation over the next 10 years. I’d say this TIPS appears to be a screaming buy versus a traditional Treasury. However, if you believe extended deflation is looming, the traditional Treasury is the way to go.

At this point I think today’s auction is worth a small investment.

I’ll be posting results after the close at 1 p.m.