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10-Yr TIPS Auction  
Released On 1/19/2017 1:00:00 PM For 1/19/2017 1:00:00 PM
Auction Results
Total Amount$13 B 
Coupon Rate0.375% 
Bid/Cover2.45 
Yield Awarded0.436% 

Highlights
Results are very strong for today's 10-year TIPS auction, where coverage, at 2.45, was the second highest in 2 years and the bidding was very tight, pulling down the high yield awarded at 0.436 percent about 3 basis points below the 1:00 bid. End investor demand was very strong, with non-dealers taking down 84 percent of the $13 billion offering. The bulk of the buyers were from the indirect bidders group, taken by some as a proxy for foreign institutional buyers, whose 77 percent share was the largest in at least 14 year. With the 10-year note trading at around 2.49 percent, the 0.436 percent high yield implies a breakeven inflation rate of 2.054 percent. This is the highest level for the market-based inflation measure since September 2014 and about 0.84 percentage points higher than the 1.21 percent post-recession low set in February last year.

Definition
The Treasury sells inflation-indexed securities, also known as TIPS, at regularly scheduled auctions. Competitive bids at these single-price auctions determine the interest rate paid on each issue, which remains fixed. Note the interest rate cannot be negative with the Treasury setting a minimum of 0.125 percent. A group of securities dealers, known as primary dealers, are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold the bills, resell the bills to their clients or trade them with other securities firms. Typically, the New York Fed approves about 20 securities firms to be primary dealers but that number dropped sharply during the 2008 financial crisis as some were merged into other firms or went bankrupt. The Fed has been rebuilding that number regularly and the latest list can be found here. The Treasury announces the amount, date and time of the 10-year TIPS auction six times a year: January, March, May, July, September and November. The 10-year TIPS are usually announced at the beginning of January and July. The March, May, September and November announcement calls for a reopening of the previously issued security. In each of the aforementioned months, 10-year TIPS are auctioned in the second week of the month. These TIPS are issued on the last day of the month; if it falls on a weekend or holiday, then they are issued (settled) on the next business day.  Why Investors Care
 
[Chart]

Data Source: Haver Analytics
 
[Chart]
The yield on the 10-year TIPS note hovers near yields of much shorter term notes, reflecting its guarantee against inflation risk.
Data Source: Haver Analytics
 

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