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5Y TIPS Preview: Some Looking For Concession After Real Yields Tumble

US TSYS/SUPPLY
  • Today’s $20B 5Y TIPS re-open at 1300ET is $2B larger than October’s new issue and $1B larger than the previous reopening.
  • 1.69% at typing, 5Y real yields have tumbled some 75bps since the Oct 19 auction yielded 2.44% (having been 2.15% pre-FOMC). Despite lifting off earlier session lows, some still see it requiring some concession.
  • BMO: “we’re wary some concession will be warranted as we presume a subset of the market is viewing the repricing as an overly dovish interpretation of the SEP and/or are expecting a backup in rates early next year. In keeping with the fact we haven't seen the December 5-year TIPS reopening stop through since 2020, we’ll look for a tail at the final real rates auction of 2023.”
  • Recent 5Y TIPS auction statistics: traded through by 0.1bp on average over past five auctions, but with a wide range of a 2bp tail in Oct and 3.8bp trade through in June. The bid-to-cover was 2.36x in Oct and has averaged 2.43x in the past five auctions, whilst primary dealer take was 9.2% (av 7.8%), indirects 73.2% (av 76.1%) and directs 17.6% (av 16.1%).
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