August 20, 2015 / 6:00 PM / 4 years ago

UPDATE 1-U.S. Treasury sells $16 bln TIPS to record investor demand

* Record high in indirect purchases

* Record low in primary dealers

* Bid-to-cover ratio for 5-yr TIPS strongest in 4 auctions

* High yield for reopened 5-year TIPS flip back to positive (Adds details, analyst quote)

By Richard Leong

NEW YORK, Aug 20 (Reuters) - The U.S. Treasury Department on Thursday sold $16 billion of five-year Treasury Inflation Protected Securities to record investor demand as the sector’s recent rout enticed bargain-minded participants to the auction.

Fund managers, foreign central banks and other indirect bidders bought 76.36 percent of the five-year TIPS originally issued in April, their largest share since the Treasury made the data available.

At the previous five-year TIPS auction in April, indirect bidders purchased 61.48 percent of the supply.

TD Securities interest rate strategist Gennadiy Goldberg assigned an “A+” grade to the TIPS auction in a note, “suggesting that the recent selloff managed to attract some end-user demand.”

The TIPS sector has been hammered in recent weeks on worries that problems in China, the world’s No. 2 economy, would slow global growth and sap demand for oil and other commodities.

Aggressive indirect bidders demand at the latest five-year TIPS sale resulted in record low purchases among direct bidders and primary dealers.

Small dealers and other direct bidders ended up with 0.53 percent of the reopened five-year TIPS, less than the 6.27 percent in the previous auction and their smallest share since an auction held in October 2009.

Primary dealers or the top 22 Wall Street firms that do business directly with the Federal Reserve purchased 23.11 percent of the latest five-year TIPS offering, which was their smallest share on record. At the prior auction, they bought 32.26 percent.

Overall demand at the auction improved from the last auction. The ratio of bids submitted to the amount offered rose to 2.58, up from 2.27 at the prior auction in April and the strongest in four auctions.

The reopened five-year TIPS cleared at a yield of 0.305 percent, compared with a yield of -0.335 percent in April and the highest since the 0.395 percent at the December auction. (Editing by James Dalgleish and Bernadette Baum)

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