By David Enna, Tipswatch.com
The Treasury’s auction of $20 billion in a new 10-year Treasury Inflation-Protected Security — CUSIP 91282CML2 — generated a real yield to maturity of 2.243%, the highest for this term at auction since January 2009.
The auction appeared to generate “okay” demand, with a bid-to-cover ratio of 2.48, fairly standard for this term of TIPS. The “when-issued” auction prediction was for a real yield of 2.232%, so the result of 2.243% indicated less-than-stellar demand.
Nevertheless, this is a very good auction result for investors. The real yield to maturity was the highest for this term since a new 10-year TIPS was auctioned in January 2009 with a real yield of 2.245%. Just like that 2009 auction, CUSIP 91282CML2 gets a coupon rate of 2.125%, also the highest in 16 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 2.243% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 2.243% for 10 years.
Here is the trend in the 10-year real yield over the last five years, showing that today’s real yield is approaching secondary-market highs of October 2023:
Obviously, real yields have moved dramatically higher since the Federal Reserve’s aggressive pandemic-era quantitative easing programs ended in early 2022. Today’s 10-year real yield is again historically attractive.
Pricing
Because the coupon rate was set at 2.125%, below the auctioned real yield, investors got CUSIP 91282CML2 at a discounted unadjusted price of 98.951405. On the settlement date of Jan. 31, it will carry an inflation index of 0.99972. With that information, we can calculate the investment cost of $10,000 par at today’s auction.
- Par value: $10,000.
- Actual principal purchased: $10,000 x 0.99972 = $9,997.20
- Cost of investment: $9,997.20 x 0.98951405 = $9,892.37
- + Accrued interest of $9.39
In summary, an investor at today’s auction is paying $9,892.37 for $9,997.20 of principal on the settlement date of Jan. 31. After that, the investor will receive inflation accruals plus an annual coupon rate of 2.125% until maturity. The accrued interest of $9.39 will be returned at the first coupon payment in July.
Interesting side note: The coupon rate of this inflation-adjusted TIPS, at 2.125%, is higher than the 10-year Treasury note’s nominal yield of less than 2.0% from August 2019 to March 2022. Things have changed.
Inflation breakeven rate
With the nominal 10-year Treasury note trading with a yield of 4.64% at the auction’s close, CUSIP 91282CML2 gets an inflation breakeven rate of 2.40%, a bit higher than recent results for this term. It means the TIPS will outperform a nominal Treasury if inflation averages more than 2.4% over the next 10 years.
That breakeven rate is high enough to make the nominal 10-year Treasury attractive, but I’d still prefer the inflation protection the TIPS provides. Here is the trend in the 10-year inflation breakeven rate over the last 5 years, showing the fairly stable pattern in the 2.0% to 2.5% range:
Reaction
As I have been noting for months, I was a buyer at this auction because CUSIP 91282CML2 is the first TIPS in history to mature in 2035, and I wanted to fill that spot on my TIPS ladder. The real yield of 2.243% was a bit of surprise, about 4 basis points higher than I thought looked likely earlier in the morning.
Also, as I predicted (this one was obvious), the TIPS auctioned with an investment cost below par value. This isn’t a huge deal, but a plus. I am pleased. Obviously, real yields could continue to climb higher, but this was a historically attractive mark.
There will be 5 more 10-year TIPS auctions in 2025. CUSIP 91282CML2 will be reopened at auction on March 20, and then again in May. Another new 10-year TIPS will be auctioned in July and then reopened in September and November.
Here is a recent history of TIPS auctions of this term, showing that as recently as three years ago, 10-year TIPS were auctioning with negative real yields:
• 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).
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. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.
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 
Appreciate the information you provide which has taught me what (I think) I need to know about TIPS and started building my own ladder a couple years ago.
It looks like Schwab and Fidelity are the only brokerages that allow you to buy at auction, would you, or any of the other commenters, know if that’s the case. Not seeing it available at Etrade or Merrill, for example.
Thanks again for what you do for all here.
Vanguard definitely allows auction purchases, with zero commission. Same with Schwab and Fidelity, as you note. But I can’t say how the other brokers handle this.
Always forget about Vanguard. Thanks.
I bought 15K of the 10 year TIPS on E Trade at auction last week.
I’m very happy I bought the Jan 2035 at this auction!
Question: I’ve created a spreadsheet for my TIPS ladder and want to confirm the YTM figures for TIPS I’ve purchased on the secondary market in the past (I was a newbie and am not confident the yields I recorded were accurate.) However, when I check my Schwab positions tab, it only shows the bid/ask yield for the current price. When I check the lot details page, it shows the price I paid for the TIPS but not the yield. Is there an easy way for me to find what my YTM is based on the price I paid? Or do I need to calculate it myself?
One way to estimate this would be to use the Treasury’s Real Yield Curve estimates for each date. https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics . Not perfect because the market real yield changes minute to minute. There might be another way, but I can’t say. I recommend taking detailed notes when you purchase on the secondary market, for this reason. In Vanguard, the trade confirmation does show the real yield to maturity, which I have been able to use in the past.
David, you solved my dilemma! I didn’t think to check the trade confirmations, but I see now that the YTM is listed on those (I went paperless so they’re in a statement section in my account that I never check.) The odd thing is that I also get Schwab trade confirms via email, but the YTM is not listed on those–everything else, though: price, quantity, accrued interest, total amt, CUSIP, maturity date, coupon, purchase date, and settlement date. Thank you!
P.S. Thank you also for that link–first time seeing it!
Hey Ruby, i buy all my TIPS (both at auction and on the secondary market) via the Schwab platform. I have done so for many years. Schwab provides me three different places to view the purchase details, but only one of them lists the YTM. Read on if you want the details.
First, immediately after any transaction (purchase or sale), Schwab updates your “Transaction History.” On the web platform, from your “Summary” page, the link to Transaction History is in the 2nd row from the top, furthest to the right. On my phone app, it just says “History.” Every transaction is listed here by date. For TIPS it provides a LOT of details, but curiously NOT the YTM.
Second, within minutes of every transaction, i also get an email notification from Schwab. For TIPS, this initial email notification lists just a few details, but again NOT the YTM.
Third, the next day (one day after every purchase or sale) i get a second email that provides additional details of the transaction. This is the place that Schwab (in my experience) ALWAYS shows the TIPS “YTM.” So if it’s YTM you’re looking for, watch for (and look closely at) the “day after” email. (If you’re not getting transaction emails, you may have to ask for that. I don’t recall if it’s automated, or if i long ago requested transaction emails.
I like the Schwab platform for buying and selling TIPS on the secondary market… It’s good for buying because it almost always has options for purchasing as little as $1,000. Why do i sell TIPS, you might ask. Like David, i hold most to maturity in my IRA accounts. But like everyone else, i had “holes” in my ladders for 2035, 2036, etc. So when YTMs were ~2.5%, i bought a bunch of TIPS maturing in 2033 and 2034. I just sold a tranche of those (for a modest profit) and bought 2035s at last week’s auction.
Good information. Also, when making a purchase order on Vanguard, the “Buy” page, just before you confirm the purchase, always shows the yield to maturity (might be called yield to worst, but it is the same). I make a note of that before I click “Submit.” At Vanguard, the order confirmation does not show the yield to maturity, but the trade confirmation — available a couple days later — does.
Hi David and the rest following this blog, I will love to hear your take on two recent data points from Barron’s: i) ..between April and Decmber, the Fed will be reinvesting $160B more in the Treasury market….thus increasing demand; ii) foreign investors, especially central banks have reduced their treasury buys and what they bought was 31% of T-bills. What impact, or not much, all this may have on interest rates across the yield curve?…thanks
The Fed reinvesting $160B more in the Treasury market means is it is scaling back on quantitative tightening, which should help keep interest rates stable or possibly lower. But then you have reduced international demand, which could cause rates to rise. The bigger effect will be in notes and bonds, I would guess, not T-bills. So all in all, is this a toss-up? Here is the Barron’s article, via MSN: https://www.msn.com/en-us/money/economy/fed-s-treasury-buying-will-come-in-handy-as-others-sell/ar-AA1Bq2vG
Thanks!!..I have a similar perspective.
A small addition to your summary, Tomas: the trade confirmation Schwab sends in the next-day email (which I would say usually, but not always, includes YTM/real yield) is available after the fact on Schwab.com. You can find it on the Accounts/Statements & Tax Forms page by selecting Trade Confirmations and choosing the correct year. They are listed by date, so you need to know the purchase date, or plan to spend a lot of time leafing through confirmations. If this gets too tedious, I have had good luck just calling customer service; with the CUSIP (or stock or option symbol) they have always been able to locate old confirmations for me, even a decade or more later.
“Be greedy when everyone else is scared.” If the yield works for you to hold to maturity, don’t look back! I’m waiting for the new 30s in Feb to extend my ladder.
I have been following Tipswatch for a couple years now and learned enough to begin acquiring TIPS. But I have never posted a comment before. I purchased these TIPS at auction and feel very happy about the rate. Thank you David for the years of work and sharing your information and analysis on this forum.
I appreciate this comment; welcome to the community.
Thanks for your excellent analysis. I didn’t get into TIPS until 3 years ago and have valued your reports and advice. I doubled the amount of my purchase for this TIPS but consider buying more at the reopen in March when I have the available funds. What insight do you have for the reopen? – I’ve never purchased from a reopen and in general is that usually a good choice (historically) or should one wait for the next regular open.
Reopening auctions are a little more complicated because the pricing — up or down — will vary based on how the coupon rate varies from the auctioned real yield. Plus, there will probably be a higher inflation index, which means you are buying additional principal. As always, the key thing to consider is: How attractive is this real yield? I always write a preview article for every auction, published on the Sunday before the Thursday auction.
Just want to thank you for the great work you do. Initially I had one order to buy this new TIP but the day before I put another order to make it more than the double. I am glad I did that and pleased with the auction results.
Thanks for cultivating TIPSWATCH. It’s a great help to small investors like myself.
I’ve got a question about data sources for current TIPs yields. The Treasury posts “Daily Treasury Par Real Yield Curve Rates” with updates near the end of the day at https://www.bloomberg.com/markets/rates-bonds/government-bonds/us . And Bloomberg also posts Treasury Inflation Protected Securities (TIPS) at https://www.bloomberg.com/markets/rates-bonds/government-bonds/us . Have you noticed lately that even at the end of the day the Bloomberg rates are often 2 to 4 bps lower than the rates posted at Treasury? Why is that, and which should we assume is correct? Thanks for any clarification.
You got your links wrong in this comment, with both going to Bloomberg. The correct Treasury link for real yields can be found here: https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics. But keep in mind that the two listings are not attempting to show the same data. The Bloomberg chart (which updates in real time) shows how the most recent TIPS of each maturity is currently trading. The Treasury chart is an estimate of the yield of a full-term TIPS for each maturity, using some sort of formula to adjust for unknowns. So in most cases, when the yield curve is normal, the longer-term full-term TIPS should have a slightly higher yield than the currently trading TIPS, which is now 2 to 6 months old.
I bought half of my desired amount of this note at this auction. Last night I saw an indicated yield of 2.13% for this auction so I feared we might see the same outcome as the october 2024 auction of the five year TIP when the auction yield came in at 1.67% where the secondary market yield for the five year maturity was 1.82% the day before. Sometimes TIPs auction yields are very volatile and unpredictable relative to the secondary market. Not sure why that is. I have opted to make some purchases on the secondary market as a result.
Auctions can turn against you, but the October 5-year is ALWAYS going to have a lower real yield than the market yield of the most recent April 5-year issue. So you need to remember that when investing in October’s new 5-year TIPS. I explained this in my preview for that October auction. https://tipswatch.com/2024/10/20/what-about-thursdays-auction-of-a-new-5-year-tips/
On the indicative yield … that is the brokerage’s estimate and it is often wrong. Not to be trusted, especially for the 5-year.
Hi,
Thanks for replying with the interesting data.
For the secondary market yields I was using values from: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_real_yield_curve&field_tdr_date_value_month=202501
I am pretty sure these values are derived from all TIPS maturing in 5 years which would include some older 10 Year TIPS outstanding (maturing in July 2029 and January 2030). So the yield of those TIPS should already reflect some of the seasonality CPI effects. So I am still left to wonder why the auction came in at 1.67% when the previous day yields for 10 year tips maturing near that 5 year maturity date were at 1.82%.
Koyla, this was an oddball event. The Treasury Yields Curve site was predicting a real yield of 1.65% on Oct. 18 (the basis for my preview article) which suddenly surged to 1.82% on Oct. 23. And then the auction result was 1.67%. The Treasury estimate was off-base. This October 5-year is always going to be an outlier. Be aware of that.
What is your opinion about the 30-year TIPS? It looks like its coupon rate has been above 2% for a while (similarly decades-high rate). Is it more attractive than I-bonds, considering both have a 30-year lifespan?
Although both the I Bond and 30-year TIPS have a 30-year maturity, they are truly different investments. The I Bond serves as an inflation-adjusted cash account. You can redeem after a year with a small penalty or after 5 years with no penalty or just hold for 30 years. All the while, the entire investment is compounding, tax-deferred. You can never lose a penny of value. The 30-year TIPS is a highly volatile investment with a value that will rise and fall with changes in real yields, sometimes dramatically. But if you are sure you can hold for 30 years, it will return 2.5% above inflation, for 30 years. That is fantastic … if you can hold to maturity. So my conclusion is: 1) I Bonds for cash needs in the shorter or longer-term future, and 2) a 30-year TIPS for an assured inflation-adjusted total at maturity.
When will this TIPS (CUSIP 91282CML2 ) show up in tipsladder.com?
I can’t say, but I expect that site will be updated soon.
I was a buyer also and I am pleased with the results! I reinvested the proceeds of a just matured TIP. I like the way Treasury handles it for the small guys (noncompetitive bids) in that you are guaranteed a fill and still get the high yield. I also remember a long period when TIPS had a negative real yield and I Bonds had a zero percent base rate and a low variable rate and I wouldn’t touch either with a ten foot pole.
I still own a bunch of paper I Bonds purchased in the first few years after they came out.
You have probably already thought this through, but be aware that those 1998 to 2001 I Bonds could be a “tax time bomb” at maturity. https://tipswatch.com/2024/02/04/long-time-i-bond-investors-face-a-tax-time-bomb/
The settlement date is Jan 31 2025 but I see vanguard has already taken out funds from my money market account today. So will I be earning coupon interest for these 8 days or not? Or will it be adjusted in me not paying accrued interest as others would pay who fund on Jan 31? thanks
I also bought at Vanguard and the settlement date is shown as Jan 31. The purchase price is listed as a debit for the correct amount and my balance “available to trade” has been reduced by that amount. But the current balance of my settlement account has not yet been reduced and the TIPS purchase has not yet settled.
Similar with Fidelity. Hoping you continue to teach us the ropes at least as long as this TIPS lasts!
I was a buyer of this auction and have no regrets. I am no expert. I like short term treasuries. But 5, 10, 30 year I prefer TIPS even if I end up losing a small bit to nominals of those durations. With all the political uncertainty I prefer the inflation protection. I also buy iBonds up to the limit for spouse and me every year.
Yes, glad I signed up for this Newsletter. Also a buyer today. Please with the auction result!
The announcement says high yield was 2.243%. It is my understanding that this is the yield for those who got low bid. Is that correct? If that is correct, than the yield will be a little lower for noncompetitive bids, right (around 2.17% or 2.18%)? For the non-competitive bids of small retail investors, they are supposed to get the weighted average of competitive bids, which is approximately the mean of all bids. How do you calculate the real yield for a noncompetitive bid? Or if you don’t know how to calculate, is there a way to look it up somewhere?
Everyone who successfully bid (meaning the bid was accepted) — competitive or non-competitive — gets the high yield of 2.243%, which was the yield that allowed the auctioned to be cleared.
As always, thanks for good analysis and historical context. I was a buyer also and this is a nice yield. A minor point: the accrued interest will be $9.39.
Thanks for the alert. I grabbed the wrong number and it is now fixed. And then I found another error thanks to your tip. Very helpful.