By David Enna, Tipswatch.com
Investors were ready and willing to jump aboard today’s auction of a reopened 30-year Treasury Inflation-Protected Security, CUSIP 912810UH9. And why not? The resulting real yield to maturity of 2.650% was the highest for this term at auction since October 2001.
This TIPS will mature February 15, 2055. It has a coupon rate of 2.375%, which was set by the originating auction on February 20, 2025.
Demand at this auction looked strong. The “when-issued” yield prediction was 2.673%, but bidders brought that down to 2.650%. The bid-to-cover ratio was 2.78, much higher than recent auctions of this term. There is a market for 30-year TIPS!
Definition: The “real yield to maturity” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 2.65% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 2.65% for 29 years, 6 months.
As I noted in my preview article for this auction, the Treasury halted 30-year TIPS auctions from October 2001 to February 2010. Before 2001, auctioned real yields were much higher across all maturities of TIPS. But today’s above-inflation yield of 2.650% was nearly 25 basis points higher than any other auction of this term since 2010.
Here is the trend in the 30-year real yield over the last 2 1/2 years:
Pricing
Because the auction’s real yield of 2.650% was well above the coupon rate of 2.375%, investors got this TIPS at a substantial discount, an unadjusted price of 94.399471. In addition, it will carry an inflation index of 1.02189 on the settlement date of Aug. 29. With that information, we can calculate the exact cost of a $10,000 investment:
- Par value purchased: $10,000.
- Principal on settlement date: $10,000 x 1.02189 = $10,218.90
- Cost of investment: $10,218.90 x 0.94399471 = $9,646.59
- + accrued interest of $9.23
In summary, an investor placing an order for $10,000 of this TIPS paid $9,646.59 for $10,218.90 of principal as of the August 29 settlement date. From then on, the investor will earn inflation accruals matching U.S. inflation, plus an annual coupon rate of 2.375% for the next 29 years, 6 months.
Inflation breakeven rate
The 30-year Treasury bond was trading with a nominal yield of 4.92% at the auction’s close, so this TIPS gets an inflation breakeven rate of 2.27%, in line with recent auction results. This means it will outperform the nominal bond if inflation averages more than 2.27% over the next 29 years, 6 months.
Some perspective: Look at 30-year inflation averages over the last 55 years. Only one 30-year period (ending in 2020) had average inflation of 2.2%. Every other one was higher.
The inflation breakeven rate isn’t truly a prediction of future rates. It is a measure of current sentiment. Here is the trend in the 30-year inflation breakeven rate over the last 2 1/2 years:
Reaction
For daring investors willing to take on the very long term, this TIPS ended up being a strong investment. Yes, real yields could continue to climb, but getting 2.65% above inflation makes for a strong asset — one you couldn’t find for nearly 24 years.
The auction result wasn’t much of a surprise, but demand was strong. That hasn’t always been true for this 30-year term, one reason the Treasury has kept auction sizes steady for four years, while bumping up sizes for 5- and 10-year TIPS.
For today’s buyers, I just want to point out that just four years ago this same term and same auction size got a real yield of -0.292%. Today’s result was a whopping 294 basis points higher. Congrats on your purchase.
Here are auction results for this term over the last five years:
• 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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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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I got 2.66% a few days ago in the 2052 maturity (secondary market).
I know that I-Bonds are usually more linked to the 5-year TIPS rate, but any guesses if the I-Bonds Fixed Rate will go up later this year?
Forecasting I Bond’s future fixed rate?
I will be writing an update soon. The rate is likely to fall to 1.0%, maybe lower. The 5-year TIPS closed today at 1.22%.
I have to think that the I-Bond fixed rate can’t go up on 11/1, regardless of what the data says. Imagine you are a Treasury staffer going in to explain to Secretary Bessent that he can set the rate at his discretion, but the standard calculation produces an increase. Given everything else he is dealing with (specifically @ the Fed), is it conceivable that he would now raise an interest rate that he controls? I can’t imagine it.
FYI, I am posting my fixed rate forecast on Tuesday morning. Be prepared!
Purchased a considerable amount today in my IRA account. I’ll be 73 in 30 years…
I advised my 37-year-old son to put some in his bond ladder portion of his IRA… he did a little and I’m sure he will like the steady safe value and cash flow when he gets close to retirement. Peace of mind in those years is worth a whole lot.
Please ignore my previous post. There are 52 weeks in a year and only 48 weeks in 12 months…so my calculation was wrong…apologies for not thinking through before posting my above question…. 😦
David and all,
I have a question about today’s 4 week Treasury Auction:
The first four lines are from Treasury Direct email I got after the auction:
Term: 4-week
High Rate: 4.300%
Investment Rate: 4.374%
Price: $99.665556
So, for example, one million dollars worth of the T-Bill will cost 1000,000×0.99665556 = $996,655.56 resulting in the annual interest of (100,0000-996,655.56)x12=40,133.28. So, the yearly interest rate will come to (40133.28/1000000) = 0.040133 or 4.0133%, which is neither High Rate of 4.30% nor Investment Rate (Equivalent Coupon) of 4.374% and it does not anywhere that I am getting 4.0133% annual rate. What am I missing…..thanks for you looking into it…best…chander
It uses a conventional 360 days so .043 / 360 * 4 * 7 * 1M
Got it..thanks!!!
It was a great yield deal. I don’t think true inflation can be hidden for very long if someone were to try to fudge the numbers. Inflation proofed and will bring in ever increasing cash for a long time.
Hi David–shouldn’t your accrued interest number be $9.23 (Adjusted) rather than $9.04 (unadjusted)?
You are correct and this is fixed.
A strong demand would indicate that the market is (surprisingly) not concerned about the BLS situation.
Somewhat true, but of course today’s higher real yields may already be pricing in the BLS factor.
Great Point. The we may never see real numbers again frenzy!
I’m glad the popularity of your blog didn’t bring the number down much further!
I grabbed a few of those tips. Thanks for the advice. It was right on the money!