The Treasury just announced that a new 10-year Treasury Inflation-Protected Security – CUSIP 912828WU0 – auctioned with a yield to maturity of 0.249% and a coupon rate of 0.125%, the lowest rate the Treasury allows on a TIPS.

Today’s result produced the lowest yield of any 9- to 10-year TIPS auction since May 2013, when a 9-year, 8-month TIPS auctioned at -0.225%. Just seven months ago, a new 10-year TIPS auctioned at 0.661%, about 41 basis points higher.

Because the yield came in just under 0.250%, the Treasury set the coupon to the next lowest 1/8 percentage point, which is 0.125%. That is the rock-bottom coupon rate the Treasury allows on any TIPS.

It also means buyers at today’s auction are getting CUSIP 912828WU0 at a discount, with an adjusted price of $98.9591 per $100 of value, which includes a small amount of interest and inflation adjustment.

Inflation breakeven rate. With the nominal 10-year Treasury currently trading at 2.51%, this sets up an inflation breakeven rate for this TIPS of 2.26%. This means that if inflation runs higher than 2.26% over the next 10 years this TIPS will outperform a traditional Treasury. (Inflation is currently running 2.1%.)

Market reaction. A higher yield looked possible in the hours before the auction, so that indicates a warm reception for this new TIPS. A look at today’s chart for the TIP ETF shows a slight bump (meaning lower yields) immediately after the auction:

Coverage by Reuters noted ‘solid demand’ for inflation protection:

“There’s still pretty solid demand for inflation protection,” said Stanley Sun, a New York-based strategist at Nomura Holdings Inc., which as one of the Fed’s 22 primary dealers is required to bid in U.S. debt sales. “People are still wanting inflation protection for the long term.”

The Wall Street Journal report noted that Treasury yields have been inching up, but not dramatically. A positive jobs report Thursday indicated that the economy continues to improve, which should mean some pressure on Treasury yields.

Thursday afternoon, the U.S. sold $15 billion in Treasury Inflation Protected Securities, or TIPS, maturing in 10 years. The auction drew solid interest, with enough bids to cover the sale 2.49 times even though the TIPS offered a low 0.249% yield. That is the lowest rate at an auction of its kind since May 2013.

Although inflation in the U.S. remains subdued, there are signs pricing pressure is rising in pockets of the economy. Many analysts say once wages start to increase, that could open the door to broader inflation and help boost the return on TIPS.