Treasury Inflation-Protected Securities

My schedule, and what’s coming next

Posted on February 9, 2025 by Tipswatch

Plus, a few other thoughts on a changing Treasury market.

Parque Nacional Torres del Paine, Patagonia, southern Chile

By David Enna, Tipswatch.com

Long-time readers of this site know what that headline signals: I am on the move. Over the next 3+ weeks I will be traveling in Argentina and Chile, including Rapa Nui, also known as Easter Island.

For me, this trip breaks a long stretch of home life — my last overseas trip (the Alps) ended August 2 and I have enjoyed this break from travel. But now … onward!

Much of the time I will be in remote island and mountain areas, and may not have strong Internet connections. I will attempt to keep up with financial news and reading & answering your comments, but no promises. Expect delays. My article updates will be spotty and ill-timed, I expect. Don’t look for posts every Sunday morning.

What’s ahead

Wednesday, February 12. The Bureau of Labor Statistics will release the January inflation report at 8:30 a.m. ET. I will be in Santiago, Chile, on that day and the time will be 10:30 a.m. This will be a “light activity” day so I hope to get an article posted.

The January inflation report is interesting because it turns the corner on non-seasonally adjusted inflation, which is used to adjust principal balances of Treasury Inflation-Protected Securities and set future interest rates for Series I Savings Bonds. At this point, economists are predicting an increase of 0.3% in seasonally adjusted inflation. The non-seasonal number will be higher.

In January 2024, seasonally adjusted inflation rose 0.3% for the month, but the non-seasonal number was 0.54%. We could see something similar on Wednesday. What to watch: Any upside surprise on inflation would not be good for today’s shaky stock and bond markets.

Sunday, February 16. I will post a preview article (probably brief) on the auction of a new 30-year TIPS set for Feb. 20. I have noticed feedback from readers that this auction is drawing some interest, which is unusual for the 30-year TIPS.

Thursday, February 20. I will be in Buenos Aires on this day, visiting the grave of Eva Perón and then touring the Paraná Delta. The auction closes at 1 p.m. ET (3 p.m. in Argentina). I’ll post a summary of the auction, when I can, probably later in the day.

On Friday, Feb. 21, I will be moving much farther south and beginning my Internet-hunting adventure. Again, please realize that I may not be able to post thoughts or respond to comments.

In other news …

TIPS auction sizes

The Wall Street Journal ran this headline last week: “Treasury Signals No Changes to Bond Auction Sizes.” There had been some speculation the new administration would begin shifting focus from T-bills to longer maturities. It is likely that U.S. borrowing needs will continue to increase in coming months. From the Treasury statement:

But for TIPS, the Treasury is making an exception. It said:

Given the intermediate- to long-term borrowing outlook and the structural balance of supply and demand for TIPS, Treasury believes it would be prudent to continue with incremental increases to TIPS auction sizes in order to maintain a stable share of TIPS as a percentage of total marketable debt outstanding. Over the February to April 2025 quarter, Treasury plans to maintain the February 30-year TIPS new issue auction size at $9 billion, increase the March 10-year TIPS reopening auction size by $1 billion to $18 billion, and increase the April 5-year TIPS new issue auction size to $25 billion.

This follows the trend of recent years, with the 5-year and 10-year TIPS auctions increasing in size for both originating and reopening auctions, but the 30-year remaining at $9 billion, where it has been for four years.

I view this Treasury announcement as an endorsement of TIPS, a valuable and unique inflation-linked investment.

Speaking of Treasury borrowing …

White House Press Secretary Karoline Leavitt on Friday laid out the tax priorities of the Trump administration:

No tax on tips.
No tax on seniors’ Social Security.
No tax on overtime pay.
Renew Trump’s 2017 tax cuts, set to expire in 2026.
Increase the deduction for state-and-local taxes, now limited at $10,000.

While I would benefit from many of these tax cuts, I have to ask: What is the actual cost and what additional taxes or spending cuts would be needed to ensure that the federal deficit will not increase dramatically in coming years?

Plus, eliminating the tax on Social Security benefits (for higher-income seniors) would speed up the draw-down of its trust fund, which will eventually lead to benefits being slashed by around 23% (now likely to happen in 2033). It could also reduce potential Medicare surcharges, known as IRMAA. While retirees hate IRMAA, those surcharges help keep Medicare afloat.

From a Bloomberg article last week:

President Donald Trump’s tax cut wish list would cost would the federal government between $5 trillion and $11.2 trillion in lost revenue over the next decade, according to a new analysis from … the Committee for a Responsible Federal Budget.

… Without more tax increases or new spending cuts, the proposed tax cuts would drive up the federal government’s debt to between 132% and 149% of gross domestic product by 2035, compared to nearly 100% of GDP currently and 118% in a decade without changes to tax law, the committee forecast. …

Trump proposed a few tax increases, including eliminating the carried interest deduction and ending tax breaks for sports team owners, but those only have a small impact on the deficit, the group estimated.

From the committee’s study:

All along, I have been assuming that the 2017 tax cuts will be extended, with some changes (like the potential SALT deduction increases). OK, that is a given. I realize I cannot foresee the administration’s entire budget-cutting plan, but I suspect taxes will not be increasing enough, and spending won’t be decreasing enough, to cover the potentially giant shortfall.

As investors in Treasurys, we are lending money to the federal government. We should be able to expect some financial discipline.

Reminder: This should not be a political issue. Most Republicans and moderate Democrats agree that the federal deficit should, at least, not be increasing in future years. And in fact, efforts should be made to get the number lower.

Inflation fears are rising

Last week, the real yield of a 10-year TIPS briefly dipped below 2.0%, down about 23 basis points in two weeks, before bouncing back up to 2.07% at Friday’s close. That continues a recent trend, with TIPS real yields declining more than nominal yields, which translates to an increase in the inflation breakeven rate:

Interesting fact to note: Across the board, inflation expectations are well above the Federal Reserve’s target of 2.0% (using a different index), going all the way to 30 years. Investors don’t have confidence that the Federal Reserve, combined with U.S. government policies, can get the job done.

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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear. Please stay on topic and avoid political tirades. NOTE: Comment threads can only be three responses deep. If you see that you cannot respond, create a new comment and reference the topic.

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.

Posted in Federal Reserve, Inflation, Investing in TIPS, Medicare, Retirement, Social Security, Taxes | 18 Comments

The unique serenity of holding TIPS at TreasuryDirect

Posted on February 2, 2025 by Tipswatch

AI-generated image for “investor in serene place.” Source: Perchance.org

By David Enna, Tipswatch.com

Want to find your happy place? Sometimes you have to go your own way.

The consensus advice is to buy individual Treasury Inflation-Protected Securities in a tax-deferred account, most likely a traditional IRA. These bonds pay taxable interest, after all, plus they dole out “phantom income” in the form of taxable inflation accruals.

Before I retired (laid off, technically) in 2016, I had limited investment space in traditional IRAs. But once I was freed from the corporate world, I moved my Vanguard 401k to a self-directed traditional IRA at Vanguard and began looking to restructure my inflation-protected investments. Since 2016, all my TIPS purchases and ladder-building have been in that IRA brokerage account.

But I still had an account at TreasuryDirect, a compilation of many purchases of I Bonds and TIPS for more than 20 years. I’ve been letting the TIPS mature, one by one, and just spending the proceeds. I have maturities still coming every year from 2025 through 2029, plus one in 2041.

Although I know I am not supposed to own TIPS in a taxable account, I view these TIPS holdings fondly. They bring me joy. So, why?

You can’t sell a TIPS at TreasuryDirect.

Actually, you can’t sell any traditional Treasury investment — bill, note, bond, TIPS, FRN — at TreasuryDirect. (Savings bonds are the one exception to this rule.) To sell a TIPS, you need to transfer the security to a bank or brokerage, where it can then be sold. This process, which can be exceedingly tedious and time consuming, is explained here.

However, as a committed buy-and-hold investor, I view this barrier as a plus. I have never sold a TIPS before maturity and plan to never let that happen.

Works for me. But if you are not 100% positive you can hold a Treasury security to maturity, DO NOT invest at TreasuryDirect. Use your brokerage instead, where any Treasury investment can easily be sold.

There is no such thing as ‘market value’ at TreasuryDirect.

Because there is no way to sell a TIPS inside TreasuryDirect — and the fact that TreasuryDirect does not allow tax-deferred accounts where RMDs could come into play — there is no need for the site to track the constantly changing market value of your investment.

Instead, for a TIPS, the only factor TreasuryDirect tracks is:

Par value x inflation index.

And the way TreasuryDirect tracks this amount (which will eventually determine the value at final maturity) is sort of amazing. Although TreasuryDirect publishes TIPS inflation indexes for every day of the year, the site ignores that information on your investment summary page.

Instead, it shows the par value x inflation index as of the date of the last coupon payment. Eventually, this information will be six months old and then finally update. Amazing, isn’t it? An example from last week:

When you buy a TIPS at a brokerage, within a day you will see its market value has changed — rising with falling market real yields and falling with rising real yields. You may see your investment slide “into the red.” But your underlying investment really hasn’t changed. You locked in your real yield to maturity when you made the purchase.

My alternative for tracking these TIPS at TreasuryDirect is to set up a simple Excel spreadsheet to calculate current accrued principal, the only factor that matters to me. I update the inflation index occasionally, with data from this site.

Is it realistic to ignore market value and focus on adjusted principal? In the serene world of TreasuryDirect it makes sense, and it works for me as a buy-and-hold investor. However, many people on Bogleheads would loudly disagree with me.

Obviously, in a tax-deferred account at a brokerage, market value comes into play because of potential required minimum distributions, which are based on market value, not adjusted principal. Plus, you need market information if you decide to sell. Brokerages have a duty to report market value. TreasuryDirect doesn’t.

A taxable brokerage account will also track market value, for the same reason. The TIPS can be sold there and you need that information.

TreasuryDirect is unique in ignoring market value. That being said, I know many investors shun TreasuryDirect (mostly because of account complications or estate considerations) and would never buy a TIPS there.

I Bonds versus TIPS.

For the I Bonds you hold at TreasuryDirect, the accrued principal updates monthly and the site always shows you the accurate current value (minus any potential 3-month interest penalty). Why the difference? Because you can redeem an I Bond on the TreasuryDirect site, and you need to know its current accrued value.

But remember: I Bonds have no secondary market and the accrued principal is the current value. There is no “market value.” And this is the same way TreasuryDirect treats the value of a TIPS — accrued principal as of the last coupon payment. This wipes out the concept of “market value,” which is something I appreciate.

Taxes? Not a problem. They are prepaid.

People don’t like holding TIPS in a taxable account because of the phantom income created by the inflation accruals, which create a tax liability even though they aren’t paid out until the TIPS is sold or matures. With a TIPS in a taxable account, you pay the phantom tax each year. At maturity you owe very little tax — just on a part-year inflation accrual and the final coupon payment.

This comes in handy in retirement. The TIPS matures and the investor gets cash to spend, owes little tax, and gets the benefit of the state income-tax exemption. With a TIPS in a traditional IRA, all taxes are shifted to the date of withdrawal. Once you make a withdrawal the entire amount is taxable at both federal and state levels, where applicable.

But, all things being equal …

If you want to be a serious investor in TIPS, creating a ladder of investments many years into the future, you will want to do this in a tax-deferred brokerage account, not TreasuryDirect. You will need the secondary market to fill the ladder and to take advantage of buying opportunities when you see them.

On TreasuryDirect, you can only buy TIPS at auction. That’s fine, but it will be difficult to build a comprehensive ladder that way. By using a tax-deferred account, you can shift money into TIPS from other investments without facing tax liability for the sales. You could build a multi-year ladder within days when real yields are highly attractive, as they are today.

So, take your choice: Serenity vs. efficiency.

• 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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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in Cash alternatives, Inflation, Investing in TIPS, Retirement, Taxes, TreasuryDirect | 36 Comments

An update on things at Tipswatch.com

Posted on January 31, 2025 by Tipswatch

By David Enna, Tipswatch.com

After I posted my latest article, “TreasuryDirect tax forms: How to find the 1099s, decipher them” I was informed by my hosting service, WordPress, that this was my 1,000th article on Tipswatch.com.

Yeah. One thousand. Geez. My very first post was April 10, 2011, titled “Why Treasury Inflation-Protected Securities?” That article was followed quickly (same day) by “What is a Treasury Investment-Protected Security?” And then, on and on.

I will admit that back in 2011 I really didn’t know all that much about Treasury Inflation-Protected Securities. I thought I did. But I didn’t. I’ve had a lot of learning experiences over the last 13+ years. Readers often helped me along. A lot of very smart people read this site.

Over these years, I have covered every TIPS auction and every inflation report, so at least I have some institutional memory of truly crazy times — Federal Reserve manipulations, negative real yields, deflationary spells, 40-year high inflation, and boom and bust times for U.S. Treasurys.

On a typical day, this site gets more than 1,500 unique visitors. Last year, users came from, in order of frequency:

United States
United Kingdom
Canada
Germany
Japan
France
India
Singapore
Mexico
China

Obviously, the United States is overwhelmingly the most common source of readership, but I have had questions from all over the world.

These were the most popular articles and pages in 2024:

Notice a trend there? Every article and page is about I Bonds. Even though I try mightily I can’t generate huge interest in TIPS, which are a very attractive investment in 2025. But TIPS are also a lot more complicated and therefore, somewhat shunned.

I was talking with a New York Times reporter this week who asked me: “Are I Bonds still popular?” My answer was, “Yes, with my readers at least. This is high-quality, inflation-protected investment for people who understand the long-term time-frame.” Here is her article.

My best day for readership, WordPress tells me, is Sunday, with 18% of my views last year. I try to publish something every Sunday morning, but yeah, I take some weeks off. Sunday is a notoriously bad day for posting financial news, but my site benefits by the fact no one else is publishing on that day. I get a lot of search engine traffic on Sundays.

In 2024, this site got 932,514 page views, well below my stellar year of 2023, with 1,518,467. This just goes to show you that my site traffic depends less on the quality of my writing, and more on high rates of inflation setting off panic.

I’ll never cheer for high inflation, so I just have to accept getting about 2,555 page views a day, which is actually … incredible.

I thank you, readers. Keep participating and spread the word.

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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in I Bond, Investing in TIPS | 67 Comments

TreasuryDirect tax forms: How to find the 1099s, decipher them

Posted on January 26, 2025 by Tipswatch

By David Enna, Tipswatch.com

If you are an account holder at TreasuryDirect, one of your “duties” each January is to go on a hunt for your 1099s, the extremely important (and ruthlessly obtuse) tax forms the Treasury hides away deep inside the site.

You will get nothing in the mail, but you will get an email that is easy to miss.

The 2-minute video (which was produced several years ago) is actually helpful, and it plays on YouTube, so you can watch it right here:

Last week I was in TreasuryDirect looking for information and I saw 1099s for the 2024 tax year were now available. (I had not received an email as of yet, but it should be coming soon.)

As the video notes, if you are part of a couple with separate accounts, or if you have linked accounts from converting paper I Bonds, or child accounts, or separate trust or entity accounts, you will need to go to the linked accounts and get separate 1099s. In the case of a spouse, you will need to log out and re-login to that separate account to find the second 1099. Here is what TreasuryDirect says:

It is important to check ALL of your accounts, as a separate Form 1099 will be created for each one. If you have established Custom, Minor-Linked, or Conversion-Linked accounts, you must access each account to print the Form 1099 for that account.

However, if you use your TreasuryDirect account simply to buy savings bonds (I Bonds or EE Bonds) and didn’t redeem any or have any mature in 2024, there will be no taxable transactions and you won’t have 1099s. You will see this on TreasuryDirect’s ManageDirect page:

TreasuryDirect is NOT going to mail you these forms. You need to hunt them down.

Important: Once you are inside the account section of TreasuryDirect, never click on your browser’s back button. If you do, you will be booted out of TreasuryDirect and you will have to log in again. To navigate, either click on the top row of tabs or click “return” at the bottom of most pages.

Here is the basic step-by-step process for finding each set of 1099s:

Log into your TreasuryDirect account on this page. Click “Next.”
Enter your account number and click “Submit.”
After you enter the account number, you will get a message that a verification code has been sent to the associated email address. Open the email, copy the code and paste it in the box. Click “Submit.”
Enter your password and click “Submit.”
Now you are on your MyAccount page on TreasuryDirect. From here you can click on your Investor InBox in the upper navigation to see further instructions. The message will be titled “Tax Statement Notification.”

Important tax information for the recently concluded tax year is now available. The Form 1099 may be accessed through the ManageDirect tab in your TreasuryDirect account. A Form 1099 will NOT be mailed to you.

Next, click on the “ManageDirect” link in the upper navigation. Under the heading, Manage My Taxes, select the link for the 2024 tax year. Then click the link: “View your 1099 for tax year 2024.” (Make sure to select 2024, not 2025.)
At this point, you may get a huge listing of all of your interest payments, savings bond redemptions, potential capital gains and original issue discount accruals for Treasury Inflation-Protected Securities.
TreasuryDirect does not offer an easily printable .pdf version of this form. To print it, click anywhere on the browser page and hit CONTROL P on a PC or COMMAND P on a Mac. This should open up a dialog to print the pages. (Mine was 12 pages long.)
Print the 1099. (Your computer may also give you the option to “print to .pdf” which will allow you to save the document before printing.)
Don’t have a printer? You can copy the entire text of the 1099 and paste it into a text or Word document. Save that file for reference when you fill out your tax return.
At the bottom of the page, click on “Return.” Repeat the process for any additional spousal or linked accounts.

One bit of comedy from TreasuryDirect: Once you open your 1099 page, there will be no top tabs and you will need to scroll all the way to the bottom (12 pages!) to get to the “Return” button. Do not click on the back arrow or you will get logged out of TreasuryDirect.

Examine the 1099

There is a lot to see here, and you don’t want to miss anything that needs reporting to the IRS. On a 1099 from any brokerage or bank, everything is nicely organized and summed up, with clear references to the proper boxes on your tax filing. Not so with TreasuryDirect. In fact, this 1099 is actually a collection of 1099 forms, each with special purposes.

Form 1099-INT Interest Income

If you invested in any T-bills, Treasury notes or bonds, TIPS or redeemed savings bonds in 2023, you are going to see all interest-paying transactions listed here. In 2024 I was rolling over staggered 13- and 26-week T-bills at TreasuryDirect, plus had a collection of TIPS, plus redeemed a couple 0.0% I Bonds, so my list was enormous: 33 items. Example:

At the bottom of this long list, way at the bottom, is the total. Scroll all the way back up to the top to see that this total is Interest On U.S. Savings Bonds And Treas. Obligations and it goes in Ref. Box 3 on the federal tax form when you are filling out the section for 1099-INT. Here is the definition of Box 3:

Shows interest on U.S. Savings Bonds, Treasury Bills, Treasury Notes, Treasury Bonds and Treasury Inflation-Protected Securities (TIPS). … This interest is exempt from state and local income taxes.

You want to make sure the interest gets recognized as coming from U.S. Treasurys, because it will be free of state income taxes.

If you had any proceeds withheld for tax purposes (highly unlikely) those totals will be listed in column 5 of this section.

Form 1099-B Proceeds from Broker and Barter Exchange Transactions

There are several sections to form 1099-B and I generally have just a few transactions listed here. This seems like a relatively new part of TreasuryDirect reporting, which shows an Accrued Market Discount on longer-term investments that matured in 2024.

This is my only 1099-B item for 2024, and it is a doozy:

This is all for a single 10-year TIPS, CUSIP 912828WU0, that matured on July 15, 2014. The Treasury calls this a “noncovered security,” which I translate to mean, “We have no idea how much you paid for this.” The 1099 instructions note: “Generally, a noncovered security means: debt instruments acquired before 2014.” But I bought it in 2014!

The problem is that Treasury is reporting the “gross proceeds” to the IRS and so I will have to try to figure out a way to keep from paying taxes on that total amount, much of which was my cost basis. The 1099 instructions are not particularly helpful. My records show my initial discount at purchase was about $400, and that is probably what will end up being taxable.

Form 1099-OID Original Issue Discount

This is a very important section for investors who hold TIPS at TreasuryDirect. The 1099-OID lists annual inflation accruals for every TIPS held in the TreasuryDirect account in 2024. These inflation accruals are federally taxable in the year they were earned, even though they were not paid out but just added to principal.

Long-time investors in TIPS are familiar with the 1099-OID, but new investors at TreasuryDirect need to pay heed to this section and report it on their federal tax return.

At the bottom of the list will be the total for all your TIPS holdings. TreasuryDirect notes:

Report this amount as interest income on your federal income tax return. … This OID is exempt from state and local income taxes.

Final thoughts

I am no tax expert, so nothing you just read should be considered tax advice. Still, getting these 1099s from TreasuryDirect is EXTREMELY IMPORTANT. And make sure you do this for every account where you had taxable activity (such as maturing short-term T-bills or redemptions of I Bonds).

You are going to get one email with a fairly cryptic message. That’s it. Nothing in the mail. Nothing you can download to Quicken. No .pdf. No easy-to-read tax summary like you receive from your broker. It’s up to you to go to TreasuryDirect, find the 1099s, print them, decipher them and report them on your tax return for 2024.

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Follow Tipswatch on X (Twitter) for updates on daily Treasury auctions and real yield trends (when I am not traveling).

Posted in EE Bonds, I Bond, Investing in TIPS, Savings Bond, Taxes, Treasury Bills, TreasuryDirect | 45 Comments

New 10-year TIPS gets real yield of 2.243%, highest for this term in 16 years

Posted on January 23, 2025 by Tipswatch

By David Enna, Tipswatch.com

The Treasury’s auction of $20 billion in a new 10-year Treasury Inflation-Protected Security — CUSIP 91282CML2 — generated a real yield to maturity of 2.243%, the highest for this term at auction since January 2009.

The auction appeared to generate “okay” demand, with a bid-to-cover ratio of 2.48, fairly standard for this term of TIPS. The “when-issued” auction prediction was for a real yield of 2.232%, so the result of 2.243% indicated less-than-stellar demand.

Nevertheless, this is a very good auction result for investors. The real yield to maturity was the highest for this term since a new 10-year TIPS was auctioned in January 2009 with a real yield of 2.245%. Just like that 2009 auction, CUSIP 91282CML2 gets a coupon rate of 2.125%, also the highest in 16 years.

Definition: The “real yield” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 2.243% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 2.243% for 10 years.

Here is the trend in the 10-year real yield over the last five years, showing that today’s real yield is approaching secondary-market highs of October 2023:

Obviously, real yields have moved dramatically higher since the Federal Reserve’s aggressive pandemic-era quantitative easing programs ended in early 2022. Today’s 10-year real yield is again historically attractive.

Pricing

Because the coupon rate was set at 2.125%, below the auctioned real yield, investors got CUSIP 91282CML2 at a discounted unadjusted price of 98.951405. On the settlement date of Jan. 31, it will carry an inflation index of 0.99972. With that information, we can calculate the investment cost of $10,000 par at today’s auction.

Par value: $10,000.
Actual principal purchased: $10,000 x 0.99972 = $9,997.20
Cost of investment: $9,997.20 x 0.98951405 = $9,892.37
+ Accrued interest of $9.39

In summary, an investor at today’s auction is paying $9,892.37 for $9,997.20 of principal on the settlement date of Jan. 31. After that, the investor will receive inflation accruals plus an annual coupon rate of 2.125% until maturity. The accrued interest of $9.39 will be returned at the first coupon payment in July.

Interesting side note: The coupon rate of this inflation-adjusted TIPS, at 2.125%, is higher than the 10-year Treasury note’s nominal yield of less than 2.0% from August 2019 to March 2022. Things have changed.

Inflation breakeven rate

With the nominal 10-year Treasury note trading with a yield of 4.64% at the auction’s close, CUSIP 91282CML2 gets an inflation breakeven rate of 2.40%, a bit higher than recent results for this term. It means the TIPS will outperform a nominal Treasury if inflation averages more than 2.4% over the next 10 years.

That breakeven rate is high enough to make the nominal 10-year Treasury attractive, but I’d still prefer the inflation protection the TIPS provides. Here is the trend in the 10-year inflation breakeven rate over the last 5 years, showing the fairly stable pattern in the 2.0% to 2.5% range:

Reaction

As I have been noting for months, I was a buyer at this auction because CUSIP 91282CML2 is the first TIPS in history to mature in 2035, and I wanted to fill that spot on my TIPS ladder. The real yield of 2.243% was a bit of surprise, about 4 basis points higher than I thought looked likely earlier in the morning.

Also, as I predicted (this one was obvious), the TIPS auctioned with an investment cost below par value. This isn’t a huge deal, but a plus. I am pleased. Obviously, real yields could continue to climb higher, but this was a historically attractive mark.

There will be 5 more 10-year TIPS auctions in 2025. CUSIP 91282CML2 will be reopened at auction on March 20, and then again in May. Another new 10-year TIPS will be auctioned in July and then reopened in September and November.

Here is a recent history of TIPS auctions of this term, showing that as recently as three years ago, 10-year TIPS were auctioning with negative real yields: