10-year TIPS auction yield is 1.485%

Thursday, July 10th, 2008
Categorized as: TIPS

The high yield was 1.485% in the Treasury’s 10-year TIPS auction held today.

The actual interest rate that will be paid by the investment is 1.375% (1-3/8%). The price for a $1,000 bond was set at $989.81282.

The bonds will have interest payment days of January 15 and July 15.

TreasuryDirect investors purchased $24,863,300 of the TIPS – about 3.1 tenths of one percent of the total amount invested. This includes both the online and legacy versions of TreasuryDirect.

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FDIC Insured Certificates of Deposit can pay 1 or 2% more than savings bonds when held for a similar length of time. See top CD Rates Below:

4 Comments

On July 10th, 2008 Dan said:

I must say, this makes me feel really “cool” with my 1.6% fixed rate I-bonds from early 2003 now!

If only I’d discovered them a few years earlier…

On July 11th, 2008 Tom Adams said:

Dan – Even the recent 1.4% I bonds look pretty good now.

Tom Adams

On August 4th, 2008 Danny Pierce said:

Ok. Pardon my ignorance but please explain the tips bonds.

The yield at last auction was 1.4% (actual interest rate 1.375%) Got that far.

Now do the feds pay the same inflation component as they do on I bonds?

This being the case, are 5 year tips a better investment than a new I bond with a 0% fixed component?

Now more confusion…I know the rules on cashing I bonds….but tips have to be held to maturity or sold on the bond market to liquidate them…Got that far…

I understand that I could lose if I sell them on the bond market, but what happens if I hold them to maturity and cash them? Will my full principal be returned or a possible reduced amount should there be a drop in inflation?

Please pardon my ignorance and thanks for all the help you give.

Danny

On August 5th, 2008 Tom Adams said:

Hi Danny – Yes, TIPS pay the same inflation component as I bonds, but it’s done differently.

With TIPS, the big difference is that when the inflation component is negative, TIPS decline in value and I bonds don’t. And with TIPS the adjustments happen monthly rather than on a six-month cycle.

If you hold the TIPS to maturity you are guaranteed to get back the amount you invested, although you can lose early inflation gains to deflation. With I bonds you can’t lose early inflation gains.

In general, I’d say that if you want to invest more than $10,000 a year, TIPS are a good way to go. For lesser amounts stick with I bonds.

Tom Adams

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