Treasury Sells TIPS at Negative Yields as Buyers Doubt Bernanke

The Treasury auctioned 10-year inflation-indexed notes at a negative yield for an eighth consecutive time as investors remain skeptical that Federal Reserve measures won’t lead to a resurgence in consumer prices.

The $13 billion in Treasury Inflation Protected Securities, which mature in January 2023, yielded negative 0.602 percent, versus the average forecast of negative 0.603 percent in a Bloomberg News survey of nine of the Fed’s 21 primary dealers that are required to bid on U.S. debt sales. Holders of TIPS receive an adjustment to the principal value of the securities equal to the change in the consumer price index, in addition to a fixed rate of interest that’s smaller than the interest paid to a holder of conventional debt.

“The negative yield is a result of the Fed policy,” Aaron Kohli, an interest-rate strategist in New York at the primary dealer BNP Paribas SA, said before the auction. “It’s a sign, on a longer horizon, to get inflation protection because the Fed is still very accommodative and that drives significant demand from investors.”

Fed Chairman Ben S. Bernanke said yesterday that further gains in the U.S. labor market are needed for the central bank to consider reducing its record monetary easing. The Fed, seeking to boost the pace of growth and heal a job market still scarred by the deepest recession since the Great Depression, also said it will leave its key interest rate near zero as long as unemployment remains above 6.5 percent and the outlook for inflation is less than 2.5 percent.

Break-Even Rate

The benchmark 10-year yield increased three basis points, or 0.03 percentage point, to 1.94 at 1:08 p.m. New York time, according to Bloomberg Bond Trader prices after climbing six basis points yesterday, the biggest increase since March 7.

The difference in yields between 10-year bonds and TIPS, a gauge of what traders expect for inflation, has risen this year, touching 2.54 percentage points today, up from 2.45 percentage points in January.

The gap, known as the break-even rate, is above the 200-day moving average of 2.39. It touched 2.73 percentage points on Sept. 17 after the Federal Open Markets Committee said it would begin a third round of quantitative-easing stimulus.

The auction’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.74, compared to an average of 2.68 for the past ten sales.

The consumer-price index rose 0.7 percent in February, the first increase in four months and the biggest since June 2009, a Labor Department report showed March 15. A surge in gasoline accounted for almost 75 percent of the total price advance.

“There is a big risk premium as every significant central bank is very accommodative,” BNP Paribas’s Kohli said.

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