The Treasury sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time in the history of U.S. debt.
The securities drew a yield of negative 0.55 percent, the same as the average forecast in a Bloomberg News survey of 7 of the Federal Reserve’s 18 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.84. The average at the last 120 auctions was 2.38. The sale was a reopening of an $11 billion offering in April
“These negative yields are being driven by the Federal Reserve and their push to increase inflation expectations,” Michael Pond, co-head of U.S. rates strategy in New York at Barclays Plc, said before the sale. The firm is one of 18 primary dealers required to bid at Treasury auctions.
The U.S. can only sell debt at a negative yield on inflation-linked debt, according to McKayla Barden, a spokeswoman at the Bureau of the Public Debt. Conventional fixed-coupon Treasuries of a given maturity could be sold at price above face value with a zero percent coupon if yields in the market on that maturity were negative. The government began selling inflation-protected debt in 1997.
The sale was the first of four this week totaling $109 billion.
The last TIPS auction, on April 26, drew a yield of 0.550 percent, which was the lowest on record. The bid-to-cover ratio was 3.15.
Treasury 30-year bonds rose for a second day, leading a rally in Treasuries, amid speculation on how much debt the Federal Reserve may buy to spur the economy and before data that may show economic growth was below average.
Ten-year note yields fell for the first time in four days, shrinking the difference between 2- and 10-year yields before the Fed meets next week. Treasuries gained even as data showed sales of existing homes rose. The U.S. is scheduled to sell $10 billion of five-year inflation-linked securities today, the first of four note auctions this week totaling $109 billion.
“Whenever we see a bit of a selloff in the Treasury market it is getting met, and will continue to get met, by renewed buying until we get clarification with regards to the size and frequency of the Fed’s asset purchases,” said Christian Cooper, senior rates trader in New York at primary dealer Jefferies & Co.
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