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Home > Buying a TIPS from Treasury Direct - Part Two

Buying a TIPS from Treasury Direct - Part Two

July 12th, 2007 at 03:51 pm

The US Treasury's 10-year TIPS Auction was today and these are the results:

Interest Rate = 2.625%
Yield = 2.749%
Price per $100 = $98.942199

So, my $3,000 TIPS should cost me $2,968.27. I will be paid interest every 6 months, and my principal will be adjusted at the rate of inflation, which means I'll be yielding 2.749% PLUS the inflation adjustments. So hypothetically, if inflation were to hold steady at 3%, my yield would be 5.749%, and of course if inflation goes through the roof my principal would grow in line with inflation. I think that's not too shabby. [Actually, I am really happy with the auction results.]

Hopefully this explains why I like TIPS as an alternative to long-term CDs.

I'll report again when the funds for my TIPS purchase are automatically deducted from my checking account.

2 Responses to “Buying a TIPS from Treasury Direct - Part Two”

  1. baselle Says:

    Not bad, but how is inflation being measured? If its the CPI, the gov tends to under report it. Still, the return is better than a lot of CDs!

  2. scfr Says:

    Yes - They use the CPI, which can be under-reported, or at least not reflect the way inflation really effects you as an individual. However, given the rate and the other positives (ease of buying, no lag time moving funds around) I do have a slight preference for TIPS right now vs. long-term CDs.

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