U.S. 10-Year TIPS Auction May Yield 0.652%, Dealer Survey Shows

The government’s sale of $13 billion of 10-year Treasury Inflation Protected Securities may draw a yield of 0.652 percent, according to the average forecast of six of the Federal Reserve’s 22 primary dealers in a Bloomberg News survey.

The inflation-indexed notes, which mature in January 2024, yielded 0.655 percent in pre-auction trading. Bids are due by 1 p.m. New York time.

The securities yielded 0.661 percent on Jan. 23 at the previous 10-year TIPS sale, the highest since May 2011. The record auction low yield for the maturity was negative 0.75 percent in September 2012.

The January sale’s bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.31, the lowest since April 2009, compared with an average of 2.52 at the previous 10 auctions.

Indirect bidders, a category of investors that includes foreign central banks, bought 51.8 percent of the securities at the January sale, compared to an average of 50.8 percent at the past 10 offerings.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, purchased 8.3 percent of the securities at the January auction, versus a 10.2 percent average at the past 10 sales.

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

TIPS Returns

TIPS have returned 1.9 percent this year after losing 9.4 percent in 2013. It was their second annual loss since being introduced in 1997 and their worst year ever, according to Bank of America Merrill Lynch’s U.S. Inflation-Linked Treasury Index. The first loss was a 1.1 percent decline in 2008. The broader Treasury market has gained 1.3 percent this year, compared with a 3.4 percent drop in 2013, the indexes show.

The Fed’s primary dealers trade directly with the central bank and are obligated to participate in Treasury sales.

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