Information on Negative Rates and TIPS
Treasury understands there have been recent questions by market participants concerning the submission of negative-yield bids for a TIPS auction and its impact on auction execution and how the interest rate (coupon) would be set if the auction stops at a negative real yield.
In September 2004, Treasury auction rules were amended to accommodate circumstances in which the submitted real yield bid is a negative number, or zero. Also, §356.20(b) states that if a TIPS auction results in a negative or zero real yield, the interest (coupon) rate for that TIPS security will be set to zero, with successful bidders' award prices set accordingly.
