The Treasury will be creating CUSIP 912828Q60 today – a new 5-year TIPS. The coupon rate and real yield to maturity will be set at the auction.
Here’s how the auction is shaping up:
- The Treasury’s Real Yields Curve page estimates that a full-term 5-year TIPS would have yielded -0.17% at the market close Wednesday. For a new issue, this is the estimate I trust the most, but you have to also add in today’s open market trends.
- Bloomberg’s Current Yields page shows that a TIPS with 4 years remaining to maturity is trading this morning with a real yield of -0.29%. That’s substantially lower than the Treasury estimate, but the term is also one-fifth shorter.
- The Wall Street’s Closing Prices page shows that this 4-year TIPS, which matures in April 2016 – closed Wednesday with a yield of -0.294% and price of about $101.62 for $100 of value. That’s very close to Bloomberg’s real-time quote.
- The TIP ETF is trading down very slightly this morning, which would indicate slightly higher yields.
I can say with certainty that this new 5-year TIPS will get a coupon rate of 0.125%, the lowest the Treasury will go. The yield will end up negative to inflation, I would guess somewhere around -0.20%. So buyers at today’s auction will have to pay a premium for the 0.125% coupon rate.
I would argue that investing in a US Savings I Bond with a fixed rate of 0.1% – available through April 30 – is easily the better investment. Do the math: 0.10% above inflation beats 0.20% below inflation.