By David Enna, Tipswatch.com
All week, I have been calling today’s auction of $21 billion in a new 10-year Treasury Inflation-Protected Security — CUSIP 91282CPU9 — the hardest to forecast in a decade.
At times, the most recent 10-year TIPS on the secondary market was trading with a real yield as low as 1.82%, but the Treasury was estimating a real yield of 1.97% on Tuesday. That’s a gigantic spread.
The reason for this week’s volatility, early on, was clearly President Trump’s implicit threats against Greenland and potential new tariffs on much of Europe. But on Wednesday that all turned around with a “framework” of a deal on Greenland and dismissal of the tariff threat.
A key auction question remained: How much trust will investors — especially foreign investors — have in U.S. Treasurys amid this turmoil?
Today’s auction results could have been an indication of slipping trust. The when-issued forecast for the auction, released just before the close, was for a real yield 0f 1.92%. The end-result of 1.940% is a pretty big miss, indicating weak demand. The bid-to-cover ratio was 2.38, not bad.
The auction set the coupon rate for this TIPS at 1.875%.
Definition: The “real yield to maturity” of a TIPS is its yield above official future U.S. inflation, over the term of the TIPS. So a real yield of 1.940% means an investment in this TIPS would provide a return that exceeds U.S. inflation by 1.94% for 10 years..
This is the first TIPS ever issued that will mature in 2036, so it was probably in high demand for small-scale investors building ladders of TIPS into future years. For those investors, a real yield of 1.940% was a pleasant surprise. Here is the trend in the 10-year real yield over the last year:
Pricing
Because the coupon rate of 1.875% was set below the real yield of 1.940%, investors got a discounted unadjusted price of 99.413260. In addition, this TIPS will carry an inflation index of 0.99779 on the settlement date of January 30, caused by deflation of -0.46% reported for November 2025. With that information, we can calculate the cost of a $10,000 par value investment in this TIPS:
- Par value: $10,000.
- Principal purchased on settlement date: $10,000 x 0.99779 = $9,977.90.
- Cost of investment: $9,977.90 x 0.99413260 = $9,919.36
- + accrued interest of $7.75.
In summary, an investor purchasing $10,000 par value at today’s auction is paying $9,919.36 for $9,977.90 of principal on the settlement date. From then on, the investor earns accruals matching future inflation for 10 years, plus an annual coupon rate of 1.875% paid on inflation-adjusted principal.
Inflation breakeven rate
At the auction’s close, the 10-year Treasury note was trading with a nominal yield of 4.25%, which creates an inflation-breakeven rate of 2.31%, more or less in line with recent trends. This means the TIPS will out-perform the nominal Treasury if inflation averages more than 2.31% over the next 10 years.
Here is the trend in the 10-year inflation breakeven rate over the last year:
Thoughts
For months, I have been signaling I was going to be a buyer at today’s auction, as long as real yields held up. And, yes, I was a buyer. It was a strange and uncertain week, maybe in line with of our “new normal.” Both the stock and bond markets have rebounded nicely from the early-week turmoil.
This will most likely be my only TIPS purchase of the year. But investors interested in building TIPS ladders should continue watching yields for TIPS maturing in 2040 and beyond, all with real yields of 2.0% and higher, sometimes much higher.
Will real yields surge higher because of a “sell-America” trade or begin falling as the Federal Reserve eventually resumes rate cuts later this year? I have no idea, honestly. But buying a TIPS with an above-inflation yield of 1.94% — and holding to maturity — is a safe-enough bet for me.
Coming up: On Sunday, I will post my I Bond buying guide for 2026. Watch for that.
Meanwhile, here is a summary of recent results for 9- to 10-year TIPS auctions:
• Confused by TIPS? Read my Q&A on TIPS
• TIPS in depth: Understand the language
• TIPS on the secondary market: Things to consider
• TIPS investor: Don’t over-think the threat of deflation
• Upcoming schedule of TIPS auctions
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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
