Econoday Report: 10-Year TIPS Auction 13, 2005

2005 U.S. Economic Events & Analysis

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10-Year TIPS Auction

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. Twenty-two primary dealers (as of August 2004) are authorized and obligated to submit competitive tenders at Treasury auctions. Dealers can hold, resell, or trade the securities with other firms. The Treasury announces the amount, date and time of the 10-year TIPS auction four times a year: January, April, July and October. The 10-year TIPS are usually announced at the beginning of January and July. The April and October 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 15th of the month; if it falls on a weekend or holiday, then they are issued (settled) on the next business day. Why Investors Care

Yield Awarded

1.725 %

Highlights
The Treasury's $10 billion 10-year TIPS auction drew yawns on Wall Street. The bid-to-cover was low at 1.88 vs. a recent average of 2.02.

Bidding by retail customers and foreign central banks was soft, with indirect bidders representing only 36.7 percent of the $9.784 billion of accepted competitive bids. The percentage compares with 54.6 at the last 10-year TIPS auction in October and 40.3 percent at the July auction.

Hints of inflation, offered by recent producer and consumer price data not to mention talk at the Federal Reserve, have yet to spark much interest in inflation-protected bonds. But if inflation does get going, demand for TIPS and their liquidity in the market are certain to pick up.

Trends

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

2005 Release Schedule

Released On: 1/13 4/14 7/14 10/13

Released For: Dec Mar Jun Oct