Real yield, measured by finding the difference between Treasury debt and inflation, is currently at 5.10 if the 10-year note is used – the highest since 1994. The average for the past 20 years has been at 2.74. With such high yield, investors are finding the cheap price of the instrument attractive, drawing more funds invested in fixed income. This comes amid plans to sell another $115bn of debt this week, inclusive of TIPS, 2-,5-, and 7-year notes.
The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week.
The gap [between 10-year note and inflation] helps explain why investors are buying bonds after losing 4.8 percent this year, the steepest decline on record, according to Merrill Lynch & Co. indexes that date back to 1978.
About this week’s offering:
The government is selling $6 billion of 20-year Treasury Inflation Protected Securities, $42 billion of 2-year notes, $39 billion due in 5 years, and $28 billion of 7-year notes through July 30. It’s only the second time that three so-called coupon issues and TIPS will be sold in a single week since the regular sales began in 1976. The previous record was $104 billion in 2-, 5-, and 7-year debt the week of June 22.
Know more from this Bloomberg report HERE.