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5Y TIPS Preview: Highest Real Yld In 15 Years Enticing Enough?​

US TSYS/SUPPLY

Today's $22B 5Y TIPS auction (1300ET) will mark the first 2+% real yield since 2008.

This will be the largest 5Y TIPS refunding yet, but boding well is that the last 2 5Y TIPS auctions traded through (June and April).

  • Since the June auction's 1.832% high yield result (resulting in a 3.8bp trade-through), 5Y real yields have risen by 70bp - driving the rise in nominal 5Y yields (implied 5Y breakevens are up just 20bp over that span).
  • In turn this has been driven by stronger than expected US economic growth, and the related anticipation that the FOMC will keep rates higher for longer.
  • Today's sale will mark an interesting test for inflation protection demand. At over 2.5%, 5Y real rates have come a long way and will look increasingly attractive to potential buyers questioning whether the FOMC will see through the final mile of bringing inflation down to the 2% target.
  • That said the concession is fading ahead of Fed Chair Powell's speech at 1200ET - the latest WI is just above 2.57%, vs 2.64% earlier in the session.


High yieldTrade through (tail)High - Median SpreadBid-to-coverPrimary Dealer PercentIndirect PercentDirect PercentOffering Amount
5-auct avg1.350%1.38.12.487.35%78.18%14.47%19.6
22-Jun-231.832%3.84.92.563.87%85.10%11.03%19
20-Apr-231.320%0.78.52.3410.21%72.59%17.20%21
22-Dec-221.504%-1.414.42.518.14%74.07%17.79%19
20-Oct-221.732%-0.76.32.387.74%75.25%17.01%21
23-Jun-220.362%3.06.22.616.79%83.89%9.32%18
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