Macro
Treasury sells $26 billion of five-year TIPS at 2.367%, a full point above April's sale, as demand softens
The inflation-protected auction tailed the when-issued level and drew a below-average bid-to-cover, with direct bidders filling the gap left by foreign and dealer demand.
HedgeWeekly News Desk ·
The US Treasury sold $26 billion of five-year Treasury Inflation-Protected Securities on Thursday at a high yield of 2.367%. That was 0.7 basis point above the 2.360% when-issued level just before the 1 p.m. New York deadline, a wider tail than the recent average of about 0.2 basis point.
Bidding was thinner than usual. The bid-to-cover ratio came in at 2.41, against an average of 2.52, and indirect bidders, a group that includes foreign official buyers, took about 62% of the sale versus an average near 67.8%. Direct bidders stepped up to 32.4%, well above their 23.0% average, which left primary dealers holding just 5.5%, roughly half their usual share.
The sale came on a day when bonds were rallying. By late morning in New York the 10-year Treasury yield had dropped 11 basis points to 5.02% and the 30-year 10 basis points to 5.32%, as investors moved into government debt while technology shares sold off and Brent crude climbed above $111 a barrel.
Why it matters: the 2.367% result is a real, inflation-adjusted yield, not an inflation forecast, and it is a full percentage point above the 1.367% at which Treasury sold the previous new five-year TIPS in April, and above 1.955% at the last five-year TIPS sale. Real borrowing costs that high raise the bar for risk assets and make inflation-protected debt a more competitive holding for allocators, while the softer foreign take-up is worth watching across upcoming coupon auctions.