30-year TIPS auctions with a yield of 1.12%

The Treasury just announced that its auction of a new 30-year Treasury Inflation-Protected Security – CUSIP 912810RR1 – resulted in a real yield to maturity (after inflation) of 1.12% and  coupon rate of 1.0%. In addition to that coupon, the TIPS’ principal balance will grow at the rate of inflation.

TIPS yields have been falling over the last 10 days as the stock market has stabilized and the Federal Reserve has taken a cautious approach to future interest rate increases.

Thursday’s yield was about 5 basis points below the yield that looked likely two hours before the auction, and indicates there was plenty of demand for the 30-year issue. The yield was also lower than the 1.2% generated for a 29-year, 4-month TIPS auctioned in October.

The adjusted price for investors was about $96.79 for $100 of par value – caused by the 0.12% spread between the yield and the coupon rate, and the fact that this TIPS will carry an inflation index rate of 0.99835 on the closing date of Feb. 29.

Inflation breakeven rate. With a nominal 30-year Treasury trading right now at 2.64%, this TIPS has an inflation breakeven rate of 1.52%, meaning that if inflation averages more than 1.52% over the next 30 years, this TIPS will outperform a traditional Treasury. That is a very low number, making the TIPS an attractive alternative even with its rather low 1.12% yield.

Feb. 18 TIPReaction to the auction. The TIP ETF had been trading a bit higher all day Thursday, indicating lower yields, and appears to be reacting to the auction with a yawn (except for very quick dip that immediately reversed).

The Treasury should be pleased with the result, with the 30-year real yield coming in about 13 basis points below where it started the year.

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One Response to 30-year TIPS auctions with a yield of 1.12%

  1. Pingback: How Valuable is a Military Pension? « Navy Medical Corps Career Blog

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