August 23, 2018 / 7:00 PM / 2 months ago

U.S. five-year TIPS sold at highest yield since 2009

NEW YORK (Reuters) - The U.S. Treasury Department on Thursday sold $14 billion of five-year Treasury Inflation Protected Securities at a yield of 0.724 percent, the highest yield since October 2009, Treasury data showed.

The ratio of bids to the amount offered 9128284H0= was 2.78, up from 2.55 at the prior five-year TIPS auction in April. US5YTIPINV=RR

Investor demand for TIPS has been improving as the government’s consumer price index, its broadest inflation measure, climbed at its fastest year-over-year pace since January 2012 in July.

On the other hand, the market’s inflation outlook has softened on worries about a possible drag on global economic growth from escalating trade conflicts between the United States and its major trading partners, analysts said.

Still, the latest U.S. TIPS auction signaled investor appetite for this type of bond as their yields have risen. That meant less pressure on primary dealers, or the top 23 Wall Street firms, to buy a heavy chunk of the five-year TIPS supply.

“Looks like the Street got what it needed, so we don’t expect anyone to come and chase it,” Jefferies & Co.’s money market strategist Tom Simons wrote in a research note.

On the open market, the yield on five-year TIPS US5YTIP=TWEB was 0.726 percent, down 0.7 basis point from late on Wednesday, Tradeweb data showed.

The spread between five-year TIPS and regular five-year Treasury notes US5YT=TWEB was 1.98 percent, up more than 1 basis point on the day. On Tuesday, it declined as low as 1.94 percent, which was the lowest since Feb. 13.

(Graphic: U.S. 5-year TIPS auction results: tmsnrt.rs/2MrPd2K)

Reporting by Richard Leong; Editing by Susan Thomas and Rosalba O'Brien

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