The Treasury just announced that Thursday’s reissue of a 10-year TIPS, CUSIP 912828SA9, auctioned with a yield to maturity of -0.391%, meaning that buyers were accepting a return that will lag inflation by 0.391% over 10 years.

This TIPS will mature on Jan. 15, 2022, making it a 9-year, 8-month issue. It carries a coupon rate of 0.125%,  so today’s buyers will pay up — about $105.07 for $100 of value, resulting in the negative yield.

The previous record low yield for a 9- to 10-year TIPS was for this same TIPS, when it was reissued in March at a yield to maturity of -0.089%. This TIPS originated way bay (ancient history) in January 2012 with a yield of -0.046%. (Thanks to commenter Bob for pointing out the March reissue.)

U.S. Treasury can celebrate. The yield on this TIPS was dragged down by economic turmoil in Europe, which sent the yield on a traditional 10-year Treasury plummeting, down to 1.70% today, the lowest rate of the year.

That set the breakeven rate at a still-reasonable 2.091%, meaning buyers of this TIPS will do better than buyers of a traditional Treasury if inflation averages more than 2.091% over the next 10 years. This auction also seems to be pricing in further Fed stimulus, which would 1) bolster artificial demand for Treasuries and 2) strike a match to fears of future inflation. Both of those prospects would benefit TIPS, but like I said, the market has already priced them in.

From the Wall Street Journal report:

Richard Gilhooly, rates strategist at TD Securities, says that the strong demand suggests investors’ hopes for another round of monetary stimulus are rising. “The QE3 trade appears to be shaping up after the FOMC minutes took a step closer last night,” he said.

The impressive auction results came amid a broad flight into U.S. government bonds. The regular Treasurys market has rallied throughout the session, dragging the yields on 10-year notes and 30-year bonds to new lows for the year. The fact that investors are seeking the safety of bonds issued by the U.S. government is likely another reason why the auction went as well as it did.