US sells 10-year TIPS at lowest yield since 2013

The U.S. Treasury Department on Thursday sold $13 billion of 10-year Treasury Inflation-Protected Securities at a yield of 0.200 percent, which was the lowest yield since a 10-year TIPS auction in May 2013, Treasury data showed.

Demand for this reopened TIPS issue was extremely strong with the share of purchase from fund managers and other indirect bidders at 75.71 percent, the biggest for this group since these data became available.

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Benchmark 10-year Treasury yields were last at 1.97 percent, up 2 basis points from late Wednesday. The yield hit 1.9 percent, its lowest since Feb. 9, early in the session.

U.S. three-year note yields were last at 0.99 percent, from a yield of 0.94 percent late Wednesday.

U.S. 30-year bond yields slid further, while benchmark 10-year yields edged lower, after the Fed cut its inflation outlook for 2015 and reduced expected U.S. economic growth on Wednesday in a statement following its latest two-day policy meeting.

US 10-YR
US 30-YR

The downgrade to the inflation projection continued to drive demand for longer-dated bonds, which benefit from a lack of inflation since inflation erodes the value of interest rate payouts.

Fed policymakers "are admitting that ... we live in a world that is still more susceptible to deflationary risks than inflationary risks," said George Goncalves, head of U.S. rates strategy at Nomura Securities International in New York.

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The Fed has a 2 percent inflation target. Yields on 30-year bonds hit a fresh nearly six-week low of 2.5 percent early in the session, and last hovered near that level at 2.51 percent. That yield was down from a yield of 2.54 percent late on Wednesday, while prices on the bonds, which move inversely to prices, were last up 16/32.

Yields on shorter maturities between three to seven years hit fresh multiweek lows early in the session before bouncing back to trade little changed.

"It's a little bit of a giveback from yesterday," said Charles Comiskey, head of Treasurys trading at Bank of Nova Scotia in New York, in reference to the mild trading in shorter-dated maturities after Wednesday's dramatic price action.

Higher yields in Europe compared to the United States continued to support U.S. Treasurys, analysts said. German 10-year Bund yields hit a fresh record low of 0.17 percent on Thursday.