The Treasury’s 10 yr TIPS auction was solid as the yield was about 1 basis point below expectations and the bid to cover of 2.51 is the highest since Jan ’00 and well above the average over the past year and a half of 2.13. The level of indirect buyers at 49.7% is no longer analyzable when comparing to previous auctions as the Treasury changed the methodology of its calculation. The implied inflation rate had fallen to 1.63%, right before the results were announced, from 2% on June 11th, thus making the desire for inflation protection more affordable and today’s results reflect healthy demand for it. The inflation/deflation debate continues with the belief in the impact of money printing and its implications on one hand versus the belief that the historically wide ‘output gap’ will keep a lid on things on the other. Today’s auction gives some measure of that sentiment.
