Yields fall, record-low auction yield hit for 10-year TIPS

CHICAGO: US Treasury yields on the longer end of the yield curve drifted lower on Thursday as stocks fell and the auction yield for 10-year Treasury-Inflation Protected Securities (TIPS) hit an all-time low.

The benchmark 10-year yield was last down 1.4 basis points at 0.5807%.

The $14 billion of 10-year TIPS were sold at -0.930%, the lowest yield ever in an auction of that security. TIPS yields are equal to relevant Treasury yields minus expected annual inflation, making them a market indicator of real interest rates.

The bid-to-cover ratio, a metric of overall demand, was 2.24.

The auction went "pretty well," according to Tom Simons, a money market economist at Jefferies in New York.

"The direct bid was a little soft, which is not all that unusual in recent times," he said, adding there was a strong take down on the indirect bid side.

A rush into TIPS has pushed yields to near historic lows amid an uptick in inflation expectations. The 10-year TIPS yield was last at -0.881%.

"With the amount of stimulus that's out there, it's hard to believe that there's not some inflation that's going to come out of this," said John Mousseau, president and CEO of Cumberland Advisors.

The latest weekly jobless claims data, which showed initial claims rising for the first time since late March did little to jar the market, which was closely following ongoing talks in Washington over the next round of aid to combat the economic fallout from the coronavirus pandemic.

"We're waiting for more direction on what's going on with potential stimulus. We get bits and pieces of headlines here and there that's not helpful for the market finding direction," Simons said.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up less than a basis point at 0.1493%.

A closely-watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is viewed as an indicator of economic expectations, was last at 43 basis points, about 1.4 basis point lower than at Wednesday's close.