But there is no need to wait for the auction.

By David Enna, Tipswatch.com

The U.S. Treasury on Thursday will offer $19 billion in a reopened Treasury-Inflation Protected Security, CUSIP 91282CRE3. The term is 9 years, 8 months. The auction has the potential to generate the highest real yield for this term since October 2008.

I emphasize potential because we’ve all seen how real yields can skew higher or lower in just a few days, as happened with last month’s auction of a 5-year TIPS. If you want certainty, you can hunt down CUSIP 91282CRE3 on the secondary market, where you can see the price you will pay and the real yield you will receive.

This TIPS had its originating auction on July 23, when it got a real yield of 2.438% and a coupon rate of 2.375%, which will carry through to this auction. The first reopening auction was Sept. 27, with a real yield of 2.653%.

This week’s auction appears headed for much higher result, with CUSIP 91282CRE3 trading Friday afternoon with a real yield of 2.87%, higher than the October 2008 auction’s result of 2.850%, amid the chaos of the global financial crisis.

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 2.87% means an investment in this TIPS would provide a return that exceeds official U.S. inflation by 2.87% for 9 years, 8 months.

Here is the trend in the 10-year real yield over the last 16 years, showing the surge in 2026 to historically high levels.

Pricing

On Friday afternoon, before the close, this TIPS was trading on the secondary market with a real yield of 2.87% and a price of 95.82, a large discount because the real yield is well above the coupon rate of 2.375%. In addition, it will carry an inflation index of 1.00870 on the settlement date of November 30. With that information we can estimate the cost of a $10,000 par value investment in this TIPS at auction:

• Par value: $10,000.
• Principal purchased on settlement date: $10,000 x 1.00870 = $10,087.00.
• Cost of investment: $10,087.00 x 0.9582 = $9,665.36.
• + accrued interest of $89.84.

Again, this is an estimate based on Friday afternoon trading. Conditions will change before the Thursday auction.

Update: I wrote this Friday at mid-afternoon. Here are Friday’s closing numbers for this TIPS and the 10-year note, from Bloomberg:

Inflation breakeven rate

On Friday afternoon, the 10-year Treasury note closed with a nominal yield of 5.14%, giving this TIPS an inflation breakeven rate of 2.26%, which seems fairly mild and would favor the TIPS versus the nominal Treasury. But I have to admit a 10-year note yielding 5.14% is getting very attractive.

Here is the trend in the 10-year inflation breakeven rate over the last 16 years. I consider this the perfect picture of market complacency about inflation. There is no fear. I personally do feel fear, so TIPS make a lot of sense in 2026:

Thoughts

This is likely to be an attractive auction; a real yield of close to 2.90% would be a gorgeous result over nearly 10 years. But you’ll have opportunities to buy this TIPS on the secondary market at any time if you want to avoid the auction’s uncertainty.

See: TIPS on the secondary market: Things to consider

The advantage of buying at auction, especially through TreasuryDirect, is that even small-lot purchases will get the auction’s high yield. The advantage of the secondary market is that you can see exactly the price and real yield you will be receiving. The negative is that you may face a small bid-ask spread. Most of the time, it doesn’t make a huge difference, but if you see a real yield you like, know that you can probably get it on the secondary market without dealing with the auction’s uncertainty.

(If you buy at TreasuryDirect, do it with the intention of holding to maturity. If you decide to sell it, you will need to transfer the TIPS to a bank or brokerage, a process that can take months.)

The next new-issue 10-year TIPS is coming to auction on January 21 — that is the one I am targeting to fill the 2037 rung of my TIPS ladder.

This TIPS auction closes Thursday at 1 p.m. ET. Non-competitive bids at TreasuryDirect must be placed by noon Thursday. If you are putting an order in through a brokerage, make sure to place your order Wednesday or very early Thursday, because brokers cut off auction orders before the noon deadline.

Because I am traveling in Spain this week, I expect to be late in posting an analysis on the auction. Here is a history of auction results for this term over the last 5 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.