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2005 U.S. Economic Events & Analysis
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20-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 usually announces the amount, date and time of the 20-year TIPS auction in the third week of January. The reopening is usually announced in the third week of July. In both cases, 20-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. The 20-year issue in July 2004 had an initial maturity date of 20 1/2 years and was reopened in January and July 2005. Why Investors Care

Yield Awarded
2.000 %

Highlights
The Treasury's second auction of 20-year inflation protected securities found mild enthusiasm at the very most.

Though the bid-to-cover on the $11 billion auction was a weak 1.49, the coverage does compare well with 1.51 at July's smaller $8 billion offering.

Bidding from non-dealers was soft representing 37.9 percent of accepted competitive bids, down from 47 percent in what was a poorly received July auction.

The high yield was a low 2.000 percent where 73 percent of the auction was allotted.

Soft demand for inflation protected securities is concrete evidence that confidence in the Federal Reserve is high and that expectations for inflation, despite a recent uptick, remain dormant.

Trends
[grid]
Data Source: Haver Analytics

2005 Release Schedule
Released On: 1/25 7/26
Released For: Dec Jun


 
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