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iShares TIPS Bond Message Board

  • dr_trade dr_trade Jun 20, 2011 9:40 AM Flag

    Will 30-year TIPS auction at record low rate?

    New post on the Tipswatch blog:

    The U.S. Treasury on June 23, 2011, will offer a 29-year, 8-month Treasury Inflation-Protected Security in a reopening of Cusip 912810QP6, which was first issued in February 2011. This same TIPS auctioned four months ago with a yield of 2.190%.

    At this point, the 30-year auction looks like it will draw a yield of about 1.8% or above. Not great, but not a record low.

    Any interest out there in this 30-year? It would be a way to boost the overall yield of my TIPS ladder.

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    • Fidelity projects the yield @1.752%.

    • I bought that 912810QP6 bond in the auction back in February. It has been treating me extremely well so far.

      I'd buy it again at today's prices but I already backed up the truck on it back in February. I certainly would not sell what I have.

      Here's why.

      1. I plan to hold it until maturity. I therefore really don't care what interest rates do between now and then. I've locked in what I'll be getting and I'm comfortable with that rate.

      2. It is my belief that economic growth will be much lower in the next 30 years than it was between 1940 and 2000. I don't think the market has priced that in yet. As near proof, I would simply point to the long-term employment trends. I am convinced that peak growth was achieved in 2000 and that at best employment growth will be slow from here on out. There are many reasons. Here is just one of them. Part of that growth was women entering the workforce. 50% of the working population is women. There's little room for extra growth from that now.

      3. In general, real yields are tied to real economic growth. The lower the economic growth the lower the real yields. Japan has very low real yields and we have too for the past decade.

      Of course, there are risks to holding US debt out 30 years too. I don't consider it to be a sure thing.

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