Catching up on Thursday’s auction of a new 10-year TIPS

I’ll be working Thursday morning, so I won’t be able to post an update then. So, let’s take a look at where the auction of CUSIP 912828S50 stands right now, after the market close on Wednesday.

Last week, I theorized that this auction of a new 10-year Treasury Inflation-Protected Security could result in a real yield to maturity that was negative to inflation. But that doesn’t look likely now. (A ‘real’ yield is the yield after inflation. It doesn’t mean a negative nominal yield like we are seeing for some government bonds in Europe and Japan.)

If you check the Treasury’s Real Yield Curve Rates page, you can see that the Treasury’s estimate for the real yield on a full-term 10-year TIPS closed Wednesday at 0.13%, 19 basis points above the number on July 8. I think this Treasury estimate is the best guide for a new-issue TIPS. But that’s the last update you’ll see before the auction.

The trend over the last 12 days has been a gently rising yield, and if that continues tomorrow, this new 10-year TIPS should auction with a coupon rate of 0.125% and a real yield to maturity of about 0.13% to 0.15%.

If you are thinking about investing in this TIPS, but waiting until tomorrow to make your decision, I’d suggest waiting until at least 10 a.m. (you have until noon for non-competitive bids). Then, check the price of the TIP ETF, which closed Wednesday at $116.13. Here is the trend in the ETF price as yields have risen over the last 12 days:

trendSo … if you see the price of the TIP ETF falling Thursday morning, you can expect a yield higher than 0.13%. If you see the price rising, you can expect a yield lower than 0.13%. If the move isn’t dramatic, it shouldn’t make much difference.

TIPS auctions often involve ‘surprises,’ especially when a new issue is coming onto the market. But if there are no Earth-shattering developments overnight, I don’t see much of a surprise Thursday.

I will be posting the auction result after 1 p.m. at SeekingAlpha.com. In the meantime, ponder this chart of all 9- to 10-year TIPS auctions since 2008:

10tips

 

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