By David Enna, Tipswatch.com
After another day of turmoil in financial markets, real yields slipped lower Wednesday heading into Thursday’s originating auction for CUSIP 91282CGK1, creating a 10-year Treasury Inflation-Protected Security.
A lot happened, I guess. I was out of the house all day today and couldn’t follow financial developments. But here is the gloomy collection I could gather from Bloomberg’s afternoon report:
- Growth in producer prices slid more than expected last month.
- The drop in retail sales exceeded estimates.
- Business equipment production slumped.
- Microsoft Corp. plans to cut 10,000 jobs.
- Bank of America started telling executives to pause hiring.
- Crypto firm Genesis Global Capital is laying groundwork for bankruptcy.
- The S&P 500 fell 1.6% in the day’s trading.
- And … bonds rallied as yields fell in line with fears of recession.
That’s a lot to digest. The nominal yield on a 10-year Treasury note fell 16 basis points to 3.53%, according to Treasury estimates. And the real yield of a 10-year TIPS dropped to 1.25%, down 11 basis points in one day. On the secondary market, the real yield of the most recent 10-year TIPS fell to 1.23% in late trading, according to Bloomberg’s Current Yields.
It’s interesting that the market has decided to place the 10-year TIPS at the lowest point of the yield curve. On the other hand, this is the “sweet spot” of TIPS investing, and the term that is in highest demand.
So what’s ahead?
My crystal ball has become very cloudy and I have no idea where tomorrow’s 10-year TIPS auction is heading. But I went ahead and placed a brokerage order to purchase this TIPS.
As I have noted before, I am looking to fill the 2033 slot in my TIPS ladder. I looked at that ladder this afternoon. It has 18 TIPS issues with maturities from April 2023 to February 2043. Of those 18, only six were purchased with a real yield higher than 1%. CUSIP 91282CGK1 is going to be the seventh.
Better opportunities may be coming later in 2023, and I will add to my holdings if I see the chance. It looks like tomorrow’s auction will end up with a real yield somewhere around 1.25% and a coupon rate of 1.125% to 1.25%. But nothing is certain.
I will be reporting the auction results soon after the auction closes at 1 p.m. ET.
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.