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10-Yr TIPS Auction  
Released On 5/18/2017 1:00:00 PM For 5/18/2017 1:00:00 PM
Auction Results
Total Amount$11 B 
Coupon Rate0.375% 
Bid/Cover2.56 
Yield Awarded0.420% 

Highlights
Results are solid for today's 10-year TIPS auction, where coverage, at 2.56, was the best since September and end investor participation was the strongest on record, with non-dealers taking down 89 percent of the $11 billion offering. Bidding was very tight, with the 0.420 percent high yield about 3 basis points below the 1:00 bid. Foreign accounts were strongly represented in the bidding for the inflation protected securities, as indirect bidders, where such buyers are counted, took down 80 percent of the issue. With the 10-year regular coupon note yielding 2.215 percent around the auction closing, the high yield awarded implies a breakeven annual inflation rate of 1.795 percent during the 9 years and 8 months until maturity for the inflation protected Treasury securities sold today.

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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