U.S. 10-Year TIPS Auction May Yield Record Minus 0.655%

The government’s $15 billion sale of 10-year inflation-indexed securities may draw a record low yield of negative 0.655 percent, according to the average forecast in a Bloomberg News survey of eight of the Federal Reserve’s 21 primary dealers.

The Treasury Inflation Protected Securities, which mature in July 2022, yielded negative 0.65 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 May 17, drew a record low yield of negative 0.391 percent, the third 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 May sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 3.01, versus 2.81 at the previous auction in March and an average of 2.75 for the past 10 sales.

Indirect bidders, a category of investors that includes foreign central banks, bought 50.7 percent of the securities at the May auction, compared with 40.4 percent at the March sale. The average for the past 10 offerings is 40.7 percent.

Direct Bidders

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 14.8 percent of the notes at the last sale, versus 21.1 percent in March and an average of 12.6 percent at the past 10 auctions.

U.S. inflation-linked debt maturing in 10 or more years has returned 10.2 percent this year, compared with a 5.9 percent gain in the broader TIPS market and a 2.7 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: Daniel Kruger in New York at dkruger1@bloomberg.net

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