By David Enna, Tipswatch.com
On a day when real and nominal yields were creeping higher, the Treasury’s auction of $26 billion in a new 5-year Treasury Inflation-Protected Security got a real yield to maturity of 1.367%, a good result for investors.
This is CUSIP 91282CQP9. The auction result set its coupon rate at 1.250%. The real yield of 1.367% was very slightly higher than the when-issued prediction of 1.365%. The bid-to-cover ratio was decent at 2.57. This auction was well supported by investors.
All morning, I had been tracking the nominal 5-year Treasury yield, which had been inching higher from 3.88% around 8 a.m. to 3.95% at the auction’s close. That rise, possibly connected to continued dim news from the Mideast, could have been a factor in today’s auction result by pulling real yields higher.
Definition: The “real yield to maturity” of a TIPS is its yield above future U.S. inflation, over the term of the TIPS. So a real yield of 1.367% means an investment in this TIPS would provide a return that exceeds official U.S. inflation by 1.367% for 5 years.
Here is the trend in the 5-year real yield over the last year, based on Treasury estimates, showing that today’s result is in the mid- to -lower range, but higher than very recent trends.
Pricing
This is a new TIPS, so its coupon rate was set to the 1/8th percentage point below the auctioned real yield. That resulted in an unadjusted price of 99.440535, a slight discount. In addition, this TIPS will carry an inflation index of 1.00235 on the settlement date of April 30. With that information, we can calculate the cost of a $10,000 par value purchase at this auction:
- Par value: $10,000.
- Principal on settlement date: $10,000 x 1.00235 = $10,023.50.
- Cost of investment: $10,023.50 x 0.99440535 = $9,967.42.
- + accrued interest of $5.13 .
In summary, an investor purchasing $10,000 par value of this TIPS paid $9,967.42 for $10,023.50 in principal on the settlement date. From then on, the investor will earn accruals matching future inflation, plus an annual coupon rate of 1.25% on adjusted principal. The accrued interest will be returned at the first coupon payment on October 15.
Inflation breakeven rate
At the auction’s close, the 5-year Treasury note was trading with a nominal yield of 3.95%, which creates an inflation breakeven rate of 2.58% for this TIPS, the highest level at auction for this term since October 2022. Clearly, developments in the Mideast are raising inflation fears, especially in the shorter term.
Here is the trend in the 5-year inflation breakeven rate over the last year:
Thoughts
Even though the real yield was well below the 1.702% generated at last April’s originating auction, this seems like a decent result. Since April 2025, the Federal Reserve has cut short-term interest rates by 75 basis points. But at this point, the Fed looks likely to keep rates stable for several months.
In my preview article for this auction, I noted: “I think a real yield level around 1.30% to 1.35% seems reasonable. The Fed won’t be cutting rates anytime soon.” Market yields change by the minute, especially in the midst of global disruptions.
At mid-morning, I asked three AI bots to predict the result of today’s auction. Here were their predictions:
Claude and ChatGPT used my article to predict a range of 1.30% to 1.35%, which due to today’s market events ended up being a bit too low. Google’s Gemini ignored my input and overshot the yield by a wide margin.
TIPS auction results have always been difficult to predict. I’ve learned to be careful, qualified and modest in my predictions.
Did you invest today? What are your thoughts? Meanwhile, here is a history of 4- to 5-year TIPS auctions over the last five years:
• 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
Treasury Inflation-Protected Securities 
Thank you for the great summary of the 5 yr TIPS auction. Back on 12/2023, I bought iShares IBIF, IBIG, and IBIH (TIPS 2031 maturity for IBIH) as a form of easy laddering and they charge a 0.10% fee. Now they have introduced a 0-5 year ETF for TIPS. I decided to participate in the 5 year auction yesterday through my brokerage.
IBIH, based on the website appears to hold two TIPS notes which are 10 year TIPS, one bought in Jan 21 and one in July 2021. Looking up the announcement, these had negative real yields at auction. The iShares iBonds website indicates trailing yield of 3.9%. To better understand this, I asked Gemini why these 10 year TIPS had appreciated, and it indicated that they appreciated primarily due to the high inflation since 2021.
Although a bit more work, I think it might be better if I buy individual TIPS, rather than paying the management fee. There is also a small amount in money market in this ETF as well which might affect performance. I also noticed they have introduced an ETF that ladders 0-5 year TIPS.
On Tuesday I bought the last 5 years of CUSIP 91282CCM1 instead. Time will tell if that was a good decisions or not.
Was satisfied with the amount of inflation protection I had, but I am a little scared about the Middle East and anticipate possibly a lot of inflation from that as well as the giant US debt so was a buyer, got 16,000 of this 5 year TIPS.
I buy a new 5 or 10 year TIPS bond when the cash and VTIPS (from dividends and interest) balance in my IRA account exceeds ~$5000. I bought the 5 year this week.
I went back and forth, expecting higher real yields later in the year, but ended up as a buyer. I saw an interesting discussion yesterday about how much sense it makes to have TIPS as 50% (or more) of total Treasury investments. That light bulb encouraged me to buy more TIPS than I had planned.
I bought 50K. I am a hold till maturity type. I am holding off on iBonds until we get clarity on what may happen in November.
Bought $10K in today’s auction (in trad IRA). Previous TIPs purchased are all 10 years out or longer. Stock market returns have been very strong last few years; gradually adding some ballast. 77 and retired, but still very long the market, mostly.
Nervously bought $10K. Hard to know if this will pay off or not but fingers crossed.
If you are holding to maturity, it will be fine.
With the additional flexibility, simplicity, and liquidity of I Bonds and not needing to set aside more than the $10K per person limit with the spouse and gift box always options, i was not a buyer.
But it’s interesting you integrated AI into your article. Think of how dangerous AI could be to amplify fraudulent data (intentionally or unintentionally designed to fool people about this or other topics) just as easily as it did when it used your legitimate data (which at least was correctly attributed).
Is it “smart” enough to distinguish spoof sites from legitimate ones? It’s a cautionary tale that validates the importance of human journalism as the true source of information.
AI can be a problem when the topic is as esoteric as a TIPS auction. It doesn’t have many sources to draw from. Claude and ChatGPT basically paraphrased my analysis, while Gemini drew from a bond-trading platform, where the data could have been outdated.
I bought $18K in today’s auction, and I just placed an order for $7K in Monday’s 5-year Note auction. I normally put everything into 5-year TIPS and nothing in 5-year Notes, but, as a hedge, I thought I’d buy some 5-year Notes this year, though not quite 50/50.
I presume I should use the actual yield from Monday’s auction to calculate my inflation breakeven point, right?
It will be your “personal” breakeven and that seems reasonable.
Evidently, AI is essentially a “consensus engine” and is incapable of doing any independent “thinking” or analysis.