Inflation Concern Drags 30-Year TIPS Yield to Record Low

(Bloomberg) -- Treasuries designed to protect investors against the potentially corrosive effects of inflation over the coming three decades extended their rally, with the yield dropping to the lowest level on record.

The yield on 30-year Treasury inflation-protected securities fell as much as 7.1 basis points to minus 0.508%, eclipsing the previous low level reached last year.

Rising concerns about consumer-price gains have helped fuel a leap in traders’ inflation expectations recently, while pricing of front-end nominal rates has also shifted as investors reassess the prospects for faster central-bank monetary policy tightening to combat these risks.

“With inflation expectations moving up again -- perhaps in anticipation of inflation data this week -- real yields have to move lower by default,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. 

The 10-year breakeven rate, a bond-market measure expected price pressures over the coming decade, rose Monday by around 7 basis points to about 2.63%. 

The most recent move in TIPS comes in a week with major new supply of coupon-bearing debt, the first round of auctions following the quarterly refunding announcement last week. It also follows the most recent policy announcement from the Federal Reserve, which last week outlined plans to taper asset purchases, but remained resolute about that move not being mechanically linked to future rate increases.

The previous low for the 30-year TIPS was -0.506%. It hit that level in August 2020 amid a surge in demand for Treasuries. Buying back then favored TIPS because auction sizes for those securities had remained stable even as auction sizes for nominal coupon-bearing debt were increased.    

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