Monday, January 11, 2010

Today's 10yr TIPS Auction Expectations.

Alert: Today’s 10yr TIPS Auction Expectations.

The Treasury’s $10B offering of new 10 yr TIPS should be met by strong demand
mainly because: Investor demand for TIPS continues to be strong; a fact reflected by increasing bid to cover ratios in the past auctions. The bid to cover ratio has increased from 2.25 to 2.51 in the last two 10yr auction. The 5yr and 20yr TIPS auctions have also seen increasing bid to cover ratios over the last 3 auctions.

This will be the only TIPS auction until late February (30yr TIPS auction) as the 20yr TIPS auction which was held in January has been eliminated. Additionally, $11.3B of TIIJan10s are maturing this month, thus leading to a negative net supply in January 2010.

The TIIJUl19s have consistently traded special in the Repo market and are currently trading 3bps thru collateral, we expect the short positions to be covered in today’s auction. We expect coupon yield to come in at approximately 1.40% which is well below the historical averages seen for 10yr TIPS. It is important to note that 10yr BEs at 247bps are no

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