Econoday Report: 10-Year TIPS Auction 14, 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

1.750 %

Highlights
Demand was surprisingly solid for the Treasury's reopening of the January 10-year TIPS note. The high rate at 1.750% was right at the when-issued note at the bidding deadline, but the bid-to-cover ratio was soft at 1.88.

But non-dealer bidding was solid with indirect bidders representing 42.6% of accepted competitive bids. The rate is up from the last auction but just below the long-term average.

Bonds moved higher in reaction to the auction. Demand for TIPS could begin to build if inflationary signals begin to emerge in force.

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