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TIPS Attract Weakest Demand Since 2001

U.S. Treasury auction of inflation-linked bonds had lowest bid-to-cover ratio in over a dozen years, reflecting expectations that inflation will remain low.

By Cordell Eddings, Bloomberg | Updated on February 21, 2014

The U.S. sale of $9 billion in 30-year Treasury Inflation Protected Securities (TIPS) drew the weakest demand in a dozen years amid stagnant inflation and as the Federal Reserve reduces its bond purchases.

The bid-to-cover ratio, which gauges demand by comparing the amount bid with the amount offered, was 2.34, the lowest level since a sale in October 2001, the last offering before the U.S. suspended sales of the security for almost a decade. Auctions resumed in February 2010. The 30-year TIPS sold yesterday yielded 1.495 percent, the most since June 2011. The average forecast of seven of the Fed’s 22 primary dealers in a Bloomberg News poll was a yield of 1.463 percent.

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