This is part three of the TIPS auctions series. Other posts in this series are:
- TIPS Auction Step By Step: Know the Schedule
- TIPS Auction Step By Step: Read the Announcement
- TIPS Auction Step By Step: Read the Results
If you are interested in TIPS but you don’t want to be bothered with auctions, you can buy TIPS in a mutual fund or ETF. See Individual TIPS Or TIPS Mutual Fund.
Say you decided to buy some TIPS from the auction. How do you place your order? Although it’s an auction, you don’t really enter a bid as you do in an eBay auction. Only financial institutions who buy TIPS in the millions bid in the auction. You get to tag along with a so called “non-competitive bid” which means you accept the final price from the auction no matter what it is. And that’s not a bad thing. Because all orders — from the big guys, and you — get the lowest price (highest yield) from the auction, your small non-competitive bid for $10,000 is treated the same as a $100 million bid from a bank. Isn’t that nice?
If you are going to buy TIPS in a taxable account, you can buy them from TreasuryDirect. If you want to buy in an IRA, you have to use a brokerage account. Fidelity and Schwab are good brokerage choices because they don’t charge any fees for buying TIPS at auction. You can also buy from Vanguard Brokerage Service, but you may have to pay a $10 fee unless you have over $100,000 with Vanguard.
I don’t have an account with TreasuryDirect so I can’t show you how to place an order there.
In Vanguard Brokerage Service, it’s under View and trade bonds or CDs, then Treasury Auction. Vanguard Brokerage Service requires a minimum order of 10 bonds or $10,000 in face value.
In Fidelity, it’s under Trade Fixed Income, then Search Inventory, then TIPS (Auction). The minimum order size at Fidelity is 1 bond or $1,000 in face value.
Enter the number of bonds you’d like to buy (1 bond = $1,000 in face value). You cannot specify any price limit because your order will be a noncompetitive bid.
The official closing time for this 10-year TIPS auction is 12:00 noon Eastern Time on July 10, 2008. If I were to buy from this auction, I’d make sure that my order is placed before 4:00 p.m. Eastern Time on July 9, 2008. That is before the end of the business day prior to the auction date.
Next step: read the auction result.