Only the 2nd auction of this term since 2011 to get a real yield above 2.0%.
By David Enna, Tipswatch.com
Real yields were ticking a bit higher Thursday morning and that trend gave investors in today’s 30-year TIPS reopening auction a nice result: A real yield to maturity of 2.055%, only the second auction of this term since 2011 to top the 2.0% mark.
This is CUSIP 912810TY4 and the auction created a 29-year, 6-month Treasury Inflation-Protected Security. Its coupon rate of 2.125% was established by the originating auction on Feb. 23, 2024, when investors got a real yield to maturity of 2.20%, the highest in 14 years.
Definition: The “real yield” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 2.055% means an investment in this TIPS will provide a return that exceeds U.S. inflation by 2.055% for 29 years, 6 months.
CUSIP 912810TY4 trades on the secondary market, and through the morning its real yield climbed from about 2.02% to 2.04%, remaining below the auction’s result. The “when-issued” prediction, issued just before the auction’s close, was 2.045%. The higher yield would indicate lukewarm demand, but the bid-to-cover ratio was 2.61, the highest for this term since an auction in August 2022.
So the auction looked like a success, especially for investors who nabbed a real yield of 2.055% for the next 29 years, 6 months.
Here is the trend in the 30-year real yield over the last 10 years, showing that yields have dipped from peaks in October 2023 and May 2024, but remain historically high:
Pricing
The auctioned real yield of 2.055% came in below the coupon rate of 2.125%, so investors paid a premium price at this auction — an unadjusted price of 101.540384. In addition, this TIPS will carry an inflation index ratio of 1.02367 on the settlement date of August 30. Using that information, here is the result of a $10,000 par purchase of this TIPS:
- Par value: $10,000
- Principal purchased: $10,000 x 1.02367 = $10,236.70
- Cost of investment: $10,236.70 x 1.01540384 = $10,394.38
- + Accrued interest of $8.87
In summary, an investor buying $10,000 par value of this TIPS will receive $10,236.70 principal on Aug. 30 at a cost of $10,394.38. From then on, the investor will earn inflation accruals plus an annual coupon rate of 2.125% for the next 29 years, 6 months.
Inflation breakeven rate
With a 30-year nominal Treasury bond yielding 4.14% at the auction’s close, this TIPS gets an breakeven rate of 2.09%. It will outperform the nominal Treasury if annual inflation averages higher than 2.09% over the next 29 years, 6 months.
As I noted in my preview article, the market appears to be underestimating potential inflation over the next three decades, which makes a TIPS purchase attractive versus a nominal Treasury. This was the lowest inflation breakeven rate for this term at auction since August 2020.
Here is the trend in the 30-year inflation breakeven rate over the last 10 years, showing the recent slide lower:
Reaction to the auction
Nothing was groundbreaking here. Real yields had been rising a bit through Thursday morning, and the auction fell into line with that trend. The TIP ETF, which was trading lower through the morning, edged slightly higher after the auction’s close at 1 p.m. EDT.
This was a good result for investors, locking in the 2.0% real yield over the long term of this TIPS. My opinion: Both ladder-builders who plan to hold to maturity and TIPS traders who are looking for a short-term profit should be pleased with the result. But of course, nothing is certain.
This is the last 30-year TIPS auction of the year. The Treasury will issue a new 30-year TIPS in February 2025. In a response to a reader’s request in the comments, here is a list of all 29- to 30-year TIPS auctions in history. (I have not tracked the inflation breakeven rate all the way back.):
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• Now is an ideal time to build a TIPS ladder
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• TIPS investor: Don’t over-think the threat of deflation
• Upcoming schedule of TIPS auctions
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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).
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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.
Treasury Inflation-Protected Securities 
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That is great – thank you!
Wish I knew about TIPS back then – not sure I understood what the regular bonds were during those years.
Interesting how market priced risk at double and triple in late 1990s compared to the last few years. Maybe because TIPS were a novelty back then? I guess our future generations will know what the “natural interest rate” should be in couple hundred years – if TIPS will still be around.
No 30-year TIPS has yet matured, so you can’t yet see how well they have performed over the full lifetime of the investment. I own CUSIP 912810FH6, which I purchased in April 1999. It matures in April 2029 and the coupon rate is 3.875%. (My real yield to maturity was 3.899% at purchase.)
Around that time, the 30-year nominal Treasury was yielding 5.53%, so the breakeven rate was about 1.7%. Obviously, the TIPS has out-performed. But TIPS were a very new investment back in 1999 and investors were unsure about how to price them.
Where is the best place to hold TIPS, Roth, IRA, or Taxable accounts?
The consensus opinion is to hold TIPS in tax-deferred brokerage account, where the phantom income from inflation accruals doesn’t matter. The negative there is that you will face state taxes potentially on future withdrawals. I have held TIPS in a taxable account at TreasuryDirect for a long time, and I am letting those mature and roll off. Those face minimal taxes at maturity since I have already paid the taxes along the way. Now all my purchases are in a traditional IRA rollover account. …. Roths would work too, but the typical advice is to hold equities in Roth accounts since that could be the last money you withdraw.
2% above inflation is good for a stash of cash.
Thomas – true for a non-taxable account and if kept till maturity.
Not sure how it plays out in a taxable account – say inflation is high for a few years – taxes get paid, then deflation. I doubt taxes “get returned” if there is deflation. I know that deflation is unlikely, but not a zero chance.
So, Treasury started 30 yr TIPS in 1998, then stopped? then started again in 2009 – would you happen to have a chart going back that far, like the one in this post?
Tnx,
AmChess, I have updated the chart in the article to show the complete list of all TIPS auctions in history.