The 10 yr TIPS auction, something that I rarely write about, went extremely well. The yield was 2 bps below when issued, the bid to cover of 2.56 was well above the average since last year of 2.35, and non dealer bidders took almost 90% of the auction, the most ever. In response the 10 yr inflation breakeven saw a sharp reversal higher. It was 1.78% just prior and is now up by 5 bps from that to 1.83%. It’s just about gotten back yesterday’s drop.
Bottom line, whatever you think about current inflation trends, the demand for inflation protection over the next 10 yrs in this auction was almost off the charts (literally). I guess with conventional yields having fallen all the way down to 2.22%, one might as well get inflation protection if you are going to buy Treasury paper here.