Auction gavel and striking sound pad

Quince Media, CC BY-SA 4.0 <https://creativecommons.org/licenses/by-sa/4.0>, via Wikimedia Commons

The October 5 Yeaer TIPS auction results are in. The price was $99.6971.

The October 5-Year TIPS auction results are in.

Money Maven bought some bonds. I bought at $996.97.  Fidelity shows the price per $100 so it shows up as $99.6971. I view this as a good result. The price was less than the $100 beginning par value of the TIPS bond. So we got a little discount.

Fidelity screenshot showing TIPS Auction Results - status filled at $99.6971
October TIPS Auction Order Filled at $99.6971

I also paid accrued interest slightly more than $1.04 ($1.0406) per $1,000 face value of bond.

I thought I would share a few things that I learned from the TIPS auction results as a new TIPS investor.

Price Difference in TIPS Auction Results

The Treasury Direct website showed the price per $100 as 99.921449 but Fidelity showed I paid $99.6971.  The TIPS Auction Results you can download from the Treasury Direct website shows an unadjusted price of 99.697130 which matches what I saw on the Fidelity website.  It also shows an adjusted price of 99.921449 with a note adjusted by an index ratio of 1.00225.

Here is the auction offering from the Fidelity website that appeared in our Don’t Miss Out – TIPS 17 year High Interest Rate.  You will notice 1.0025 is the inflation factor that was published at the time of auction.

TIPS data table from Fidelity.com shows 10/19/2023 TIPS auction expected coupon 2.75% and expected yield 2.22%
5 YR TIPS Bond Auction October 19 source: Fidelity.com

Same Price

You and I are what is called non-competitive bidders. We ride on the coattails of the big banks and other competitive bidders who actually make bids with what yield they wish to receive. The non-competitive bidders or individual investors just enter how many bonds to purchase and the price is set at the auction.  I was curious if all non-competitive bidders received the same price. I checked with two people in the Money Maven community that participated in this auction. All three of us bought at the unadjusted price of 99.6971.

Competitive Bid

A competitive bid is one in which the bidder, at a U.S. Treasury auction, specifies the discount rate, yield, or discount margin they wish to receive.

Noncompetitive Bid

In a U.S. Treasury auction, a noncompetitive bid is one in which an investor agrees to buy a specified number of securities at the discount rate, yield, or discount margin set at the auction.

Accrued Interest in TIPS Auction Results

I didn’t expect to pay accrued interest at the initial (not a re-opening) TIPS auction.  The TIPS I purchased had a dated date of October 15, 2023 which means the bond starts to earn interest on October 15.  The auction was October 19, so I had to pay the interest that started accruing on the TIPS bond.  On the first interest payment date in April 15 of next year we will be paid interest beginning October 15.  We didn’t actually own the bond on October 15 so we are paying the interest for that time period we didn’t own the bond. 

Dated Date

The date from which interest accrues for Notes and Bonds. The dated date and issue date are usually the same. In those cases where interest begins accruing prior to the issue date, however, the dated date will be prior to the issue date. An example is when the dated date is a Saturday and the issue date is the
following Monday.

Glossary on Treasury Direct website

Reference Inflation or CPI

I found you can see the reference CPI number for the dated date of your TIPS bond. I clicked on the CUSIP number to see this data. It is also available to download from the Auction Query page.

data for the latest 5 Year TIPS bond CUSIP 91282CJH5 the REF CPI on Dated Date is 306.2939
CUSIP 91282CJH5 data

You can then track the changes in CPI and Index ratio over time to calculate your inflation adjusted principal. The Index Ratio is how the TIPS bond principal is adjusted for inflation.

 

Calculating your inflation-adjusted interest payment

To calculate your inflation-adjusted interest, follow these steps:

  1. Use the CUSIP number to find your TIPS in the table.
  2. Click on the CUSIP number.
    The TIPS/CPI query results page for that CUSIP number appears.
  3. In the table on the query results page, find the Index Ratio that corresponds to the interest payment date for your security.
  4. Multiply your original principal amount by the Index Ratio.
    This is your inflation-adjusted principal.
  5. Next, multiply your inflation-adjusted principal by half the stated interest (coupon) rate on your security.

The resulting number is your semi-annual interest payment.

Summary

Remember from the TIPS 17-year High Interest Rate post, The 2.375% interest rate is the highest interest rate since 2006. Prior to the auction I was a little nervous about what price would be determined at auction. Fidelity had published an expected yield of 2.22%, Since this is less than the coupon interest of 2.375% Fidelity was expecting a price more than $100. However the price was slightly less than $100. So those of you who bought at this auction got a 17-year high interest rate without paying a premium.

2 thoughts on “Oct 5Year TIPS Auction Results Good

  1. First time TIPS buyer here too. Thanks MoneyMaven for the great advice and documenting the buy and interest calculation process. Many articles I’ve read on TIPS comment on their complexity…I figure I’d start with a 5 yr bond and use it as a lesson example to learn another form of investment…and hopefully make some money in the process. Good thing about TIPS is can’t loose my initial stake $..
    What’s next?

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