Time for a look at tomorrow's 5Y TIPS new-issue auction. $TIP #Treasuries 1/
The last couple of October 5Y TIPS auctions (in 2020 and 2019) went off at yields significantly lower than the yields on the previous issue, from April, despite maturing six months later. 2/
That's mostly because Oct-maturing issues accrue inflation for six months after the April-maturing issues stop accruing & those months (March-Aug) historically have been better months for inflation than Sept-Feb, when discounting is rampant & gasoline demand is lower. 3/
Inflation is wacky now, but expected inflation for March-August 2026 (which only the new issue will get) is still higher than expected inflation for Sept 2025-Feb 2026 (the final accrual months for the April 2026 issue). 4/
If that were all that mattered, the Oct-maturing new issue would be worth more than the April-maturing old one, and draw a lower yield, as it did the past two years. 5/
However, the WI yield is about 4bp higher than the current issue's. That's because the TIPS yield curve is much steeper than in past years. There's a slope from 4.5 to 5 years that's worth about 12bp according to Barclays, swamping the Oct issue's superior seasonality. /END

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More from @beth_stanton

22 Oct
This is a good day to explain how specific TIPS breakeven inflation rates are calculated. 1/
For any given TIPS, the breakeven rate is normally the difference between its yield and the yield of the nominal Treasury with the closest maturity date. 2/
For the 5-year TIPS sold at auction yesterday, that's currently the on-the-run 5-year (0.875s of Sep26). After next week's auction of nominal 5s, the Oct26 will probably (it's up to the market) become the comparator, because it'll be closer. 3/
Read 5 tweets
26 Aug 20
A thread about Treasury Index month-end duration extensions 1/
On the last business day of the month, usually at 3pm, bond indexes get rebalanced. Securities issued during the month that fit the index criteria get added, and ones that no longer fit (most notably, ones that mature in less than a year) come out. 2/
The effect generally is to lengthen the duration of the index. And generally, the increases are biggest at the end of the quarterly refunding months of February, May, August and November, when auction sizes are largest. 3/
Read 12 tweets

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