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30-Yr TIPS Auction  
Released On 6/22/2017 1:00:00 PM For 6/22/2017 1:00:00 PM
Auction Results
Total Amount$5 B 
Bid/Cover2.83 
30-Year TIPS Auction Rate0.880% 

Highlights
Results are solid for today's 30-year TIPS auction, where coverage, at 2.83, was the best since October 2011, and the bidding tight, pulling down the high yield to the awarded 0.880 percent, nearly 2.5 basis points below the 1:00 bid. Demand from end investors was very strong, with non-dealers taking down 85 percent of the $5 billion offering, the largest share on record. With the ordinary 30-year bond trading around 2.730 percent at the time of the auction close, the 0.880 percent high yield for its inflation protected counterpart implies a breakeven inflation rate of 1.85 percent over the 29-year 8-month remaining life of the TIPS bond.

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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