Published Fri, 22 May 2020 04:47:30 -0400 on Seeking Alpha
In its five-month auction history, CUSIP 912828Z37 showed remarkable volatility, with a swing of 115 basis points from March to May.
Today's real yield of -0.47% was the lowest at auction for any 9- to 10-year TIPS since March 2013.
Negative real yields are the new normal and will continue as long as the Federal Reserve continues interventions into the bond market.
For the first time in 42 consecutive auctions of this term stretching over seven years, the real yield on a 10-year TIPS went negative Thursday, dropping to -0.47% in a $12 billion Treasury offering.
This is CUSIP 912828Z37 and Thursday's reopening auction created a 9-year, 8-month Treasury Inflation Protected Security with a coupon rate of 0.125%. This TIPS was first auctioned on January 23, when it launched with a real yield of 0.036%, just above negative. Then it was reopened on March 19, in the midst of COVID-19 financial chaos, and returned a stellar real yield of 0.68%.
Thursday's auction closes the volatile history of CUSIP 912828Z37, one of the more memorable TIPS issues in recent history, showing a 115-basis-point swing in yield in only two months:
A TIPS is an investment that pays a coupon rate well below that of other Treasury investments of the same term. But with a TIPS, the principal balance adjusts each month (usually up, but sometimes down) to match the current U.S. inflation rate. So the "real yield to maturity" of a TIPS indicates how much an investor will earn above inflation.
Negative real yields aren't unheard of for 10-year TIPS; in fact, they were all-too-common from 2012 to 2013, as the Federal Reserve actively intervened in the Treasury market during a period of quantitative easing. But the last time a 10-year TIPS auction resulted in a negative yield was May 2013, seven years ago, and Thursday's result was the lowest negative yield since March 2013. Here's a look at this past period of negative real yields:
An expensive investment
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|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|ISHARES BARCLAYS TIPS BOND FUND||115.82||0.0||0.00||2.15||1.85|
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