U.S. Treasury Sells 10-Year Indexed Notes at Yield of 0.174%

(Bloomberg) -- The U.S. Treasury Department sold $12 billion of 10-year inflation-indexed notes at a yield of 0.174 percent, as demand rose relative to the last auction of securities with the same maturity.

Demand was stronger than at the last auction, judging by the bid/cover ratio, which compares the number of bids with the amount of securities sold. The ratio was 2.41, compared with 2.28 at the previous sale. It was the highest since 3.07 at the May auction.

Indirect bidders, a group that includes foreign central banks, bought 66.4 percent of the amount sold, compared with 64.3 percent in the prior auction. Primary dealers bought 17.3 percent, compared with 17.1 in the previous sale. Direct bidders purchased 16.3 percent.

The securities are intended to provide a hedge against rising consumer prices. At the previous auction, last July 18, the notes drew a high yield of 0.282 percent.

Inflation-indexed notes rise or fall in value tracking changes in the consumer price index calculated by the Labor Department. Inflation adjustments will be added to the notes’ principal and be payable at maturity.

Investors value inflation indexed securities by measuring the yield of the inflation indexed notes against the yield of the nominal notes minus the rate of inflation, a measure known as the real yield.

In financial market trading after today’s sale, the yield on the standard 10-year note was 1.77 percent, while the two-year note yielded 1.74 percent.

The Treasury said 52.36 percent of the bids were allotted at the high yield of 0.174 percent, while the low yield submitted was 0.075 percent and the median yield was 0.128 percent.

The coupon rate was 0.25 percent. The equivalent price was 101.037653.

Tenders totaled $28,971,115,200. Treasury accepted $12,000,003,200 of the bids.

Auction Details

Notes sold competitively, mainly to investment firms for sale to investors in the secondary market, totaled $11,990,950,000. Notes sold on a non-competitive basis, mainly to individual investors, totaled $9,053,200.

The notes will be issued or settle Sept. 30, and mature Sept. 30, 2029. The CUSIP, or identification number will be 9128287D6.

Inflation-indexed notes are eligible for the Treasury’s Strips program. Strips stands for Separate Trading of Registered Interest and Principal of Securities. Coupons are separated from a note or bond and become a security. The remaining face value bond becomes another security that is known as a zero- coupon bond. The strips minimum is $100.

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