U.S. 5-Year TIPS May Yield Negative 0.271% at Sale, Survey Says

The Treasury’s $16 billion auction of five-year inflation-indexed notes may draw a yield of negative 0.271 percent, according to the average forecast in a Bloomberg News survey of five of the Federal Reserve’s 22 primary dealers.

Bids for the Treasury Inflation Protected Securities, or TIPS, which mature in April 2019, are due by 1 p.m. New York time. The amount is down from the $18 billion the Treasury sold at its last offering on April 17, which matched the sale size a year earlier, the biggest in records dating to 1997.

The April auction drew a yield of negative 0.213 percent. It was the 11th consecutive five-year TIPS sale that had a negative yield.

Holders of TIPS receive an adjustment to the principal value of their 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 difference is known as the break-even rate.

The fixed payment on five-year TIPS, known as the real yield, was pushed below zero as the rise in the CPI was greater than the yield on regular five-year U.S. notes, which fell with other Treasury yields as investors sought the safety of U.S. government debt.

April’s five-year TIPS sale had a bid-to-cover ratio, a gauge of demand that compares the amount bid with the amount offered, of 2.7. The average at the past 10 sales was 2.6.

Central Banks

Indirect bidders, a class of investors that includes foreign central banks, purchased 58.4 percent of the securities at the last auction, the most since the government revived sales of the securities in 2004. The average for the past 10 offerings was 44.2 percent.

Direct bidders, non-primary-dealer investors that place their bids directly with the Treasury, bought 5.9 percent of the securities at the April sale, the least since April 2011, compared with a 10 percent average at the past 10 auctions.

TIPS maturing in three to five years have returned 2.1 percent this year, according to Bank of America Merrill Lynch Indexes. TIPS of all maturities gained 6.6 percent this year, while the broader Treasury market advanced 3.8 percent, the indexes show.

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

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