No. of Recommendations: 1
Loki, I keep thinking about Greenspan warning that this is an era where investors are only demanding a very low risk premium...and that previous comparable eras ended badly. Because of this, I wouldn't buy a 10-year TIPS. What if "something" happens (no surprise -- something always happens, eventually), and the risk premium rises above the historic average? Based on a graph that you shared with us, a few weeks ago, 2% does seem to be the average.

I am thinking of buying 5-year TIPS, in my IRA, at the next Treasury auction (which is in April 2006).

Would the coupon reflect the current yield (2.15%)? Or, would they issue TIPS with the coupon of 0.875%, and the yield be adjusted by the auction price?

What is the chance that the yield would be lower, at the auction, compared with secondary-market TIPS?

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