(BN) Treasury Draws Negative Yield for First Time During

Treasury Draws Negative Yield for First Time During TIPS Sale
2010-10-25 17:07:08.164 GMT


By Daniel Kruger and Cordell Eddings
    Oct. 25 (Bloomberg) -- The Treasury sold $10 billion of
five-year Treasury Inflation Protected Securities at a negative
yield for the first time in the history of U.S. debt.
    The securities drew a yield of negative 0.55 percent, the
same as the average forecast in a Bloomberg News survey of 7 of
the Federal Reserve's 18 primary dealers. The bid-to-cover
ratio, which gauges demand by comparing total bids with the
amount of securities offered, was 2.84. The average at the last
120 auctions was 2.38. The sale was a reopening of an $11
billion offering in April.
    "These negative yields are being driven by the Federal
Reserve and their push to increase inflation expectations,"
Michael Pond, co-head of U.S. rates strategy in New York at
Barclays Plc, said before the sale. The firm is one of 18
primary dealers required to bid at Treasury auctions.
    The U.S. can only sell debt at a negative yield on
inflation-linked debt, according to McKayla Barden, a
spokeswoman at the Bureau of the Public Debt. Conventional
fixed-coupon Treasuries of a given maturity could be sold at
price above face value with a zero percent coupon if yields in
the market on that maturity were negative. The government began
selling inflation-protected debt in 1997.

                        Other Auctions

    The sale was the first of four this week totaling $109
billion.
    The last TIPS auction, on April 26, drew a yield of 0.550
percent, which was the lowest on record. The bid-to-cover ratio
was 3.15.
    Treasury 30-year bonds rose for a second day, leading a
rally in Treasuries, amid speculation on how much debt the
Federal Reserve may buy to spur the economy and before data that
may show economic growth was below average.
    Ten-year note yields fell for the first time in four days,
shrinking the difference between 2- and 10-year yields before
the Fed meets next week. Treasuries gained even as data showed
sales of existing homes rose. The U.S. is scheduled to sell $10
billion of five-year inflation-linked securities today, the
first of four note auctions this week totaling $109 billion.
    "Whenever we see a bit of a selloff in the Treasury market
it is getting met, and will continue to get met, by renewed
buying until we get clarification with regards to the size and
frequency of the Fed's asset purchases," said Christian Cooper,
senior rates trader in New York at primary dealer Jefferies &
Co.

For Related News and Information:
Bond yield forecasts: BYFC <GO>
Top bond market news: TOP BON <GO>
World bond markets: WB <GO>
Credit market watch: CMW <GO>
Sovereign debt monitor: SOVR <GO>
Short-term liquidity SLIQ <GO>
Bonds for sale: PREL <GO>

--With assistance from Daniel Kruger in New York. Editors: Greg
Storey, Paul Cox

To contact the reporters on this story:
Cordell Eddings in New York at +1-212-617-7344 or
ceddings@bloomberg.net;
Matthew Brown in London at +44-20-3216-4059 or
mbrown42@bloomberg.net

To contact the editor responsible for this story:
Dave Liedtka at +1-212-617-8988 or dliedtka@bloomberg.net