The 10 yr TIPS auction was good as the yield was about in line with expectations but the bid to cover at 2.65 is above the ’09 average of 2.59 and the average over the past 2 yrs of 2.30. It’s the 2nd highest going back to 2000. Indirect bidders totaled 40.7% which is below the prior two however. Ahead of the auction, the implied inflation rate in the 10 yr TIPS was 2.45% which means if one believes inflation will run above that over the next 10 yrs on average then buy inflation protection and vice versa. The rate is up almost 30 bps in the past month. Thus, demand for this auction has much different dynamics than what we will see the rest of the week when the Treasury sells 10 and 30 yr maturities Wed and Thurs. With these auctions, investors will have no inflation protection and must rely on faith that the Fed will maintain the purchasing power of the US$.
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