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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