Bloomberg News

U.S. 10-Year TIPS May Yield Record Minus 0.329%

May 17, 2012

The government’s $13 billion sale of 10-year inflation-indexed securities may draw a record low yield of negative 0.329 percent, according to the average forecast in a Bloomberg News survey of nine of the Federal Reserve’s 21 primary dealers.

The Treasury Inflation Protected Securities mature in January 2022. They yielded negative 0.37 percent in trading before the auction. Bids are due by 1 p.m. New York time.

The last offering of 10-year TIPS, a $13 billion sale on March 22, drew a record low yield of negative 0.089 percent, the second time an auction of the maturity yielded less than zero.

TIPS pay interest at lower rates than nominal Treasuries on a principal amount that’s linked to the Labor Department’s consumer price index.

The March sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.81, versus 2.91 at the previous auction in January and an average of 2.73 for the past 10 sales.

Indirect bidders, a category of investors that includes foreign central banks, bought 40.4 percent of the securities at the March auction, compared with 36.3 percent at the January sale. The average for the past 10 offerings is 40.3 percent.

Direct Bidders

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 21.1 percent of the notes at the last sale, versus 13.4 percent in January and an average of 11.4 percent at the past 10 auctions.

U.S. inflation-linked debt maturing in 10 or more years has returned 5.12 percent this year, compared with a 3.54 percent gain in the broader TIPS market and a 1.07 percent gain in the overall Treasury market, Bank of America Merrill Lynch indexes show.

Primary dealers trade government securities with the central bank and are obligated to participate in Treasury auctions.

The auction is the Treasury’s only offering of notes or bonds this week.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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