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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Tom Adams
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…
Dan - Even the recent 1.4% I bonds look pretty good now.
Tom Adams
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
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