By David Enna, Tipswatch.com

The Treasury’s auction of a new 5-year Treasury Inflation-Protected Security, CUSIP 91282CRR4, generated a real yield to maturity of 2.367%, a disappointing result on a “risk-off” day that sent investors flooding into the safety of U.S. Treasurys.

Each October, the 5-year new issue is difficult to predict, but after yesterday’s close I would have guessed today’s real yield would have come in about 2.47%. A series of events overnight — a tech-stock rout, an escalation of tensions in the Mideast, and a debt-frenzy hitting Europe — resulted in investors swapping out of stocks and into Treasurys.

Both nominal and real yields have declined today. The yield of the 10-year Treasury note, for example, has fallen from about 5.13% yesterday to 4.96% today. That is significant, and today’s TIPS auction was caught in the wave.

Demand did not look surprisingly strong. The auction’s bid-to-cover ratio was 2.41, the lowest since a similar auction in April 2025. The “when-issued” yield prediction used by bond traders was 2.36%, and the auction result came in a bit higher.

The coupon rate for this TIPS was set at 2.25%.

It’s important to note, however, that the real yield of 2.367% was the highest at auction for this term in the last three years. And it was massively higher than the October auction of 2021. Investors should feel good about that.

Here is the trend in the 5-year real yield over the last year (ending Tuesday), showing the remarkable surge higher since May:

Pricing

CUSIP 91282CRR4 got an unadjusted price of 99.454587, at a discount because the coupon rate was set below the auction’s high yield. It will also carry an inflation index of 1.00154 on the settlement date of October 30. With that information we can calculate the cost of a $10,000 par value purchase at this auction.

• Par value: $10,000.
• Principal purchased on settlement date: $10,000 x 1.00154 = $10,015.40.
• Cost of investment: $10,015.40 x 0.99454587 = $9,960.77.
• + accrued interest of $9.29.

In summary, an investor paid $9,960.77 for $10,015.40 of principal on the settlement date. From then on, the investor will earn accruals matching official U.S. inflation, plus annual coupon interest ot 2.25%, for the next five years. The accrued interest will be returned at the first coupon payment in April.

Inflation breakeven rate

At the auction’s close, the 5-year Treasury note was yielding 4.78%, giving this TIPS a 5-year inflation breakeven rate of 2.41%, a bit higher than recent trends for this term. The breakeven rate means the TIPS will out-perform a nominal Treasury if inflation averages more than 2.41% over the next five years. To me, this breakeven rate looks about right, but I’d prefer the inflation protection provided by the TIPS.

Here is the trend in the 5-year inflation breakeven rate over the last year, showing the decline in inflation expectations since mid-year:

Auction thoughts

Heading into this week, this auction looked very likely to set a 20-year high in real yield — possibly around 2.50% — but market turmoil broke that trend. The Treasury’s daily Yield Curve Estimate still showed 2.55% for a 5-year TIPS at yesterday’s close. (I thought the Treasury estimate was probably too high, as I explained in my preview article for this auction.)

So we end up with a real yield of 2.376%, a good result but not awe-inspiring. This TIPS will begin trading soon on the secondary market, and it will get a reopening auction on Tuesday, December 22. If we end up getting a rate increase from the Federal Reserve on December 9, that auction could get interesting.

Coming up. I will be posting a “forecast” for the I Bond’s new fixed and composite rates on Sunday, 8 a.m. ET. There is a lot of uncertainty for the fixed rate at the November 1 reset and this could go down to the wire.

Here are results for every 4- and 5-year TIPS auction 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.