By David Enna, Tipswatch.com
I am currently cruising down Germany’s Rhine River, with surprisingly limited internet access in a remote area, so this will need to be a quick post.
Today’s Treasury offering of $17 billion in a new 10-year Treasury Inflation-Protected Security — CUSIP 91282CHP9— generated a real yield to maturity of 1.495%, well below expectations. Because the real yield fell just .005% below 1.5%, the coupon rate was set at 1.375% instead of 1.50%.
Still, this auction’s real yield of 1.495% was just slightly higher than the 1.485% generated at a November 2022 reopening auction of this term. That means it generated the highest real yield of any 9- to 10-year TIPS auction since April 2010.
Before the auction’s close, the most recent TIPS of this term was trading all morning with a real yield in a range of 1.54% to 1.59%, so today’s auction looked likely to generate a real yield in that range. The ‘when-issued’ forecast for this TIPS — generated just before the auction’s close — was 1.546%.
The bid-to-cover ratio was 2.51, the highest for this term since May 2022.
So it goes. Demand was high, and the real yield fell in response.
Pricing
This TIPS auctioned at an unadjusted price of 98.893296, and it will have an inflation index of 1.00130 on the settlement date of July 31. That means an investor buying $100 par paid about $99.02 for $100.13 of principal.
Inflation breakeven rate
With the nominal 10-year Treasury note trading with a yield of 3.87% at the auction’s close, this TIPS got an inflation breakeven rate of 2.38%, a bit higher than recent results.
Reaction to the auction
Bloomberg, in an article published July 21, noted both the high demand for this auction and the resulting inflation breakeven rate of 2.38%, which is within range of the Fed’s target. It noted:
If CPI inflation exceeds 2.3%, investors are better off buying TIPS, and on Thursday, they plunked cash on the barrelhead. An auction of new 10-year Treasury Inflation-Protected Securities drew a yield more than 5 basis points lower than where they were trading at the bidding deadline, a sign that demand exceeded dealers’ expectations. …
Unlike in 2021 when investors flocked to TIPS as inflation took off, then suffered steep losses in 2022 as yields soared, TIPS yields remain at or near multiyear highs, providing a cushion in the event that inflation moderates toward the levels priced into the market. …
“Real yields look attractive,” said James Evans, who manages inflation-protected bond funds at Brown Brothers Harriman & Co. “If you think inflation is going to be 3% for a while, that’s a pretty good real return.”
Here is a list of recent TIPS auctions of this term:
And now, I am off to dinner.
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• Upcoming schedule of TIPS auctions
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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.Please stay on topic and avoid political tirades.
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.
Treasury Inflation-Protected Securities 
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David, relax! I’m fine with the results for $5k each in our accounts. This is money I will leave in Bucket 2 until maturity. Not a bad result.
Yeah, I am fine with the result; better than any 10-year TIPS auction in a very long time.
Great summary. Just the same, I prefer buy in the secondary market. What you see is what you get. No surprises.
BTW, what does “Bids at clearing yield” mean? I.E was 5.38% at yesterday’s 20-year bond reopening.
“BTW, what does “Bids at clearing yield” mean? I.E was 5.38% at yesterday’s 20-year bond reopening.”
5.38% was the “Allotted at High” value on the Treasury Auction Results for CUSIP 912819TS7. This was a reopening of the 20-year bond issued on May 31, 2023.
A competitive bid is a bid to purchase a stated par amount of securities at a specified yield. When accepting bids, Treasury first accepts in full all noncompetitive bids as long as that leaves enough of the offering amount for competitive bids to provide a fair determination of the yield. Then they start accepting those competitive bids at the lowest yields through successively higher yields up to the amount required to meet the offering amount. Generally, the total amount of bids at the highest accepted yield exceeds the offering amount remaining after Treasury accepts the noncompetitive bids and the competitive bids at the lower yields. In order to keep the total amount of awards as close as possible to the announced offering amount, Treasury awards a percentage of the bids at the highest accepted yield. That percentage is the “Allotted at High” value.
I share the disappointment at the yield. But when you do the math, the actual difference isn’t exactly knee-buckling (unless maybe you’re talking 6-figure purchases.) And the real yield is still quite good for recent history. At the end of the day, I’ll take it.
Agree
Bought my standard allotment. Glancing over the history David so thoughtfully provided am not severely disappointed.
Enjoy your trip David!
David, has anyone been able to quantify how much demand for these new 10 year TIPS may be generated by the “dead zone” –no TIPS issued for 2033-40 range? Are there ETFs that are trying to fill in the middle of a longer duration bond latter that inflates the demand for these new issues?
Luckily, I cut way back on my plan for these and bought a few 7 and 8 year TIPS instead. I have to say, Fidelity had this pegged early this AM at 1.48%, in time that I could have canceled my order…
Thanks for the description, I decided not to buy. My time horizon is 5 years so I’ll look for that type of investments.
Great summary David. I was hoping for a good yield and definitely shocked at the realized 1.495% since that changed the coupon. When I was putting my order in yesterday, I felt bad for not buying more. Today, I am happy I didn’t load up.
glad I only bought 1. what a ripoff price 😐