Today’s 10-year auction of a new-issue Treasury Inflation-Protected Security was met with tepid demand, resulting in a surprising coupon rate of 0.625% and a real yield to maturity of 0.639%.

Just two days ago, the market rate for a 10-year TIPS was inching below 0.5%.

On the other hand, 0.639% was the 2nd lowest 10-year TIPS auction in history, above only the 0.409% of  November 2010. The 10-year TIPS auctioned in May went at a yield of 0.887%.

I say tepid, but Dow Jones says the auction was well-received by institutional direct bidders, who probably saw the higher rate coming. MarketWatch says:

Direct bidders, a group that includes domestic money managers, purchased another 13.7%, the highest since at least 2002 and well above the average of 4.8%.

View the auction results for Cusip 912828QV5.

Treasuries have been under pressure this week, according to Bloomberg, because of reports that European leaders may accept a temporary Greek default and ease the terms on bailouts to cash-strapped nations, damping U.S. bonds’ refuge appeal.

In addition, the threat of a possible U.S. default is looming in just 11 days, which creates uncertainty in the market. It was also the first TIPS auction since the end of QE2, which helped bolster demand for Treasuries.