Thursday’s 5-year US Treasury TIPS auction was something of a noteworthy one, according to Kit Juckes at Societe Generale:
As the results page shows the auction ‘stopped’ at a yield of -1.311 per cent.
But what’s more interesting according to Juckes is the following (our emphasis):
In the language of bond auctions, it had a low bid/cover ratio, a long tail and was a bit of a mess! A 3 year history of 5yr real yields (TIPS), next to conventional 5yr Treasury yields and the difference between the two (break-even inflation) provides some context: In October 2008, 5yr real yields reached 3.2% and on April Fools’ Day 2013, they reached -1.77%. We have seen a very sharp correction of a small part of that long fall in the last two weeks. 5yr conventional Treasury yields have also fallen since 2008, of course. But since the start of this month, conventional yields have actually fallen a little further, as soft US data is interpreted as either a temporary soft patch for the economy or the end of a temporary period of strength. We, of course are firmly in the former camp. The result though, is that the rise in real yields is matched by an equally sharp fall in breakeven inflation rates. 5yr breakeven inflation rose for a distorted low of -0.5% in October 2008, to almost 3% in 2011, but in this month alone we have seen a fall of 0.6% to 1.95%.
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