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TIPS Issuance, Trading Jumps

Sales of Treasury Inflation-Protected Securities grew by 142% and were expanded across different maturities this year because of rising inflation fears.

Sales of Treasury Inflation-Protected Securities grew by 142% and were expanded across different maturities this year because of rising inflation fears.

The Treasury auctioned off $63 billion in TIPS this year, compared to last year's $26 billion of 10-year TIPS auctions. The Treasury also expanded its offerings across the curve with an $11 billion 20-year TIPS auction in July and the readdition of five-year TIPS with a $12 billion auction in October. The five-years were originally introduced in 1997, but removed because of the lack of demand.

The average daily volume of TIPS also increased, up to $6 billion from last year's $3.7 billion. To be sure, this is a drop in the bucket compared to the Treasury market's average daily volume of $498 billion, but shows a marked increase in trading volumes.

"Inflation was back on the radar screen once the [Federal Reserve] started to hike interest rates," said Alex Li, interest rate strategist at Credit Suisse First Boston.

Expanding the TIPS issuance across the curve is in response to increased demand from pension managers. Interest has grown from those investors over the past two years because most managers need five years of performance to be able to market their funds, according to Gemma Wright, interest rate strategist at Barclays Capital.

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