By David Enna, Tipswatch.com

The Treasury’s offering of $19 billion in a reopened Treasury Inflation-Protected Security, CUSIP 91282CRE3, generated a real yield to maturity of 2.653%, the highest for this term since an auction in October 2008.

Investor demand at the auction appeared to be a bit weak, in the wake of a Federal Reserve decision to raise interest rates on Wednesday, and signal that more increases could be coming. The auction’s bid-to-cover ratio was 2.24, the lowest for this term in a year. The “when-issued” prediction used by bond traders was 2.634%. The higher resulting yield indicates less-than-stellar demand.

For today’s auction investors, however, this adds up to good news. The real yield of 2.653% was 22 basis points higher than result for this TIPS’ originating auction on July 23, and a whopping 75 basis points higher than a similar 10-year reopening auction on March 19.

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 2.653% means an investment in this TIPS will provide a return that exceeds official U.S. inflation by 2.653% for 9 years, 10 months.

Here is the trend in 10-year real yields since January 2025:

In this chart, I have noted two crucial events: 1) The launch of U.S. tariffs in April 2025 and 2) the beginning of the U.S. war with Iran in March 2026. While tariffs caused real yields to immediately surge, the market returned to normal in a few months. The war with Iran, because of its inflationary dangers and resulting surge in government borrowing, has caused real yields to soar.

This is the path of annual all-items inflation over that same period, showing the apparent inflationary effects of tariffs and the obvious and more severe effects of the war and resulting energy crisis:

Real and nominal yields are rising for a reason. Inflation and government borrowing are not under control.

Pricing

The coupon rate for CUSIP 91282CRE3 was set at 2.375% by the originating auction in July. Because today’s real yield was higher, investors got a discounted unadjusted price of 97.612784. In addition, this TIPS will carry an inflation index of 0.99985 on the settlement date of September 30. With that information, we can calculate the cost of a $10,000 par-value investment at this auction:

• Par value: $10,000.
• Adjusted principal on settlement date: $10,000 x 0.99985 = $9,998.50.
• Cost of investment: $9,998.50 x 0.97612784 = $9,759.81.
• + accrued interest of $49.69

In summary, the investor paid $9,759.81 for $9,998.50 of principal on the settlement date of September 30. From then on, the investor will earn accruals matching future U.S. inflation, plus an annual coupon rate of 2.375% for 9 years, 10 months. The accrued interest will be returned at the next coupon payment in January.

Inflation breakeven rate

At the auction’s close, the 10-year Treasury note was trading with nominal yield of 4.95%, giving this TIPS an inflation breakeven rate of 2.30%, in line with recent results for this term. It means the TIPS will out-perform the nominal Treasury if inflation averages more than 2.3% over the next 9 years, 10 months.

Over the last 10 years, ending in August, inflation has averaged 3.4%. Here is the trend in the 10-year inflation breakeven rate since January 2025:

Thoughts

Today’s auction was a very good result for investors, netting the highest real yield since a similar auction in October 2008 — in the heart of a severe financial crisis — went off at 2.85%. There is no evidence of a crisis today, except for the excessive surge in U.S. government and corporate borrowing.

This TIPS will get another reopening auction on November 19 and then a new 10-year TIPS will be auctioned January 21, 2027. That January auction is my current target, so I hope yields remain elevated until then.

Were you an investor? Post your thoughts in the comments section. Here is a history of auctions for this term over the last two 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.