The US 5-year TIPS auction was slightly weaker than the market was expected at -1.08% (-1.10% in the WI market). The bid-to-cover ratio was also softer than the prior reading at 2.58 vs 3.01 prior.
This means bondholders are now willing to lose slightly less, in terms of real returns, than the market was expecting. However, it was the lowest auction yield on record for this series.
USD/JPY has moved up a couple pips to 81.54 but we are still a long, long way from a normal market. The 5-year breakeven (which is the traditional market-based measure of inflation) is still in negative territory but QE has skewed everything so badly that it’s almost pointless to analyze.
