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5-Yr TIPS Auction  
Released On 12/22/2016 1:00:00 PM For 12/22/2016 1:00:00 PM
Auction Results
Total Amount$14 B 
Coupon Rate0.125% 
Bid/Cover2.68 
Yield Awarded0.120% 

Highlights
Results are very strong for today's 5-year TIPS auction, where coverage, at 2.68, was the best since April 2014 and the bidding was tight, pulling down the high yield awarded at 0.120 percent about 1.5 basis points below the 1:00 bid. Particularly noteworthy was the strong end investor demand, with non-dealers taking down 81 percent of the $14 billion offering, their largest takedown share for the 5-year inflation protected security ever. The high yield awarded was 31.1 basis points above the previous auction rate and the highest since December 2015. Today's offering was a re-opening of the 5-year TIPS originally issued on April 29 and matures in 4 years and 4 months.

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. 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 5-year TIPS auction twice a year -- in April and October. The 5-year TIPS are usually announced during the third week of April and auctioned the subsequent week. In October, TIPS are also announced during the third week of the month, but this is typically a reopening of a previously issued security. The 5-year TIPS are issued on the last business day of the month. These securities mature at mid-month; consequently, investors who purchase these securities at auction are required to pay the interest accrued between the 15th of the month and the issue date.  Why Investors Care
 
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Data Source: Haver Analytics
 
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The auction rate for the 5-year TIPS auction may be negative, but TIPS coupons have a minimum floor of plus 0.125 percent.
Data Source: Haver Analytics
 

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