US sells USD 24bln of 5-year TIPS, stop through 0.5bps

A very strong 5-year TIPS auction. The US Treasury sold USD 24bln of 5-year TIPS at a high yield of 1.955%, above the prior auction's 1.367% and the six-auction average of 1.576%. The auction stopped through by 0.5bps, a notable improvement from the prior 0.2bps tail and well above the six-auction average 1.3bps tail.

Demand metrics were exceptionally strong. Dealers were left with just 3.43% of the offering, far below both the prior 8.5% and the six-auction average of 12.9%, highlighting robust end-user demand. Direct demand rose to 27.99% from 26.9% and was comfortably above the 22.2% average, while indirect demand increased to 68.59% from 64.6%, above the 64.9% average.

The strong result comes a day after a hawkish FOMC decision, where the Fed removed forward guidance, revised inflation projections higher and shifted the median dot plot to imply one rate hike this year. The auction also offered investors the highest real yield in over a year, likely helping attract demand from both domestic and foreign accounts.

Overall, a very strong auction. The sizeable stop-through, exceptionally low dealer allocation and strong participation from both direct and indirect bidders suggest investors remain willing buyers of inflation-protected Treasuries despite the recent decline in energy prices. The result may also indicate that investors continue to view inflation as a key risk, particularly after the Fed's hawkish shift amid higher inflation forecasts.