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30-Yr TIPS Auction  
Released On 10/19/2017 1:00:00 PM For 10/19/2017 1:00:00 PM
Auction Results
Total Amount$5 B 
Bid/Cover2.64 
30-Year TIPS Auction Rate0.908% 

Highlights
Results are solid for today's 30-year TIPS auction, where coverage, at 2.64, was slightly above the long term coverage and the bidding was tight, pulling down the high yield to the awarded 0.908 percent, about 0.3 basis points below the 1:00 bid. End investor demand for the inflation-protected 30-year was quite strong given the subdued inflation expectations indicated by recent surveys, with non-dealers taking down 77 percent of the $5 billion offering, substantially above their long-term average share of 68 percent. The 0.908 percent high yield was 2.8 basis points above the previous auction rate. With the conventional 30-year bond trading at a yield of 2.828 percent at the time of the auction close, the awarded yield for the 30-year TIPS implies a breakeven annual inflation rate of 1.92 percent for the next 30 years.

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 usually announces the amount, date and time of the 30-year TIPS auction in mid-February. The Treasury has not been consistent with reopening dates with recent reopening announcements ranging from mid-August to mid-October. In original issues and reopenings, 30-year TIPS are usually auctioned in the last week of the month. These TIPS are issued (settled) on the last business day of the month. These TIPS, however, have a mid-month maturity date. 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
 
[Chart]

Data Source: Haver Analytics
 
[Chart]
The yield on the 30-year TIPS bond hovers near yields of much shorter term notes, reflecting its guarantee against inflation risk
Data Source: Haver Analytics
 

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