20-year TIPS auction yield is 2.42%

Wednesday, January 24th, 2007
Categorized as: TIPS

The high yield was 2.420% in the Treasury’s 20-year TIPS auction held yesterday. The actual interest rate that will be paid by the investment is 2.375% (2-3/8%). Consequently, the price for a $1,000 bond was set at $992.13485.

The bonds will have interest payment days of January 15 and July 15, so investors also have to prepay interest of $1.04891 per bond to cover the interest between January 15 and the bond’s issue date, January 31. This prepayment will be reimbursed to investors in the July interest payment.

Thus the total cost to TreasuryDirect investors will be $993.18376 per bond.

Both the price and yield have been adjusted, using an index ratio of 0.99923, for inflation during the Jan 15-Jan 31 period.

TreasuryDirect investors purchased $2,191,000 of the TIPS – about 2.5 hundredths 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:


On January 25th, 2007 Charles said:

“about 2.5 hundredths of one percent of the total amount”

Hi Tom,
Sounds like a drop in a big bucket. It looks like the Treasurys administration fees for dealing with the small investor wouldn’t be worth the trouble. Any idea of what percentages are generally purchased using TD for T Bills and shorter term bonds?

On January 25th, 2007 Tom Adams said:

Charles – there are no fees to use TreasuryDirect, so that’s not the issue.

TIPS have some complexities that most individual investors aren’t comfortable with. The 20-year TIPS in particular are best avoided in favor of I bonds because their value is quite volatile. Twenty years of interest payments creates a lot of leverage so that when interest rates rise or fall 1 percentage point the effect on the value of a 20-year TIPS is well over 10% down or up.

T-Bills are much more popular with individual investors. This week there was an auction of 26-week T-Bills and about 9% of the issue went to TreasuryDirect investors.

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