The U.S. sale of $15 billion of 10-year inflation-indexed debt drew the lowest yield in more than a year amid bets consumer-price growth will increase beyond the Federal Reserve’s 2 percent target as the economy improves.

The Treasury Inflation Protected Securities yielded 0.249 percent, the least since May 2013. Direct bidders, an investor category that includes pension funds and insurers, bought 10.3 percent of the notes, the most since November, exceeding their average 9.2 percent share at the past 10 auctions.

“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 U.S. sold $13 billion in 10-year TIPS at the last auction of the securities, on May 22, drawing a yield of 0.339 percent.

Inflation-indexed notes pay interest at lower rates than nominal Treasuries on a principal amount that’s linked to the Labor Department’s consumer price index.

Benchmark Treasury 10-year note yields increased four basis points, or 0.04 percentage point, to 2.51 percent in trading in New York.

At today’s sale, indirect bidders, a category of investors that includes foreign central banks, purchased 53.1 percent of the debt, versus the 53.3 percent average at the past 10 offerings.

The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.49, compared with a 10-sale average of 2.56.

ETF Buying

Investors are stepping up their buying of exchange-traded funds that hold Treasuries tied to cost-of-living increases, data compiled by Bloomberg show. Net purchases of the 12 ETFs that hold U.S. inflation-linked bonds in July have totaled $193 million, more than triple the $60 million that has flowed into conventional government bonds this month.

The Fed’s preferred measure of current inflation, a gauge tied to consumer spending, was 1.8 percent in May, up from 1.6 percent the previous month.

TIPS of all maturities have returned 6.8 percent in 2014 after losing 9.4 percent last year, according to Bank of America Merrill Lynch bond indexes. Conventional Treasuries have gained 3.5 percent this year after falling 3.4 percent in 2013 amid a rally in higher-risk assets, the indexes show.

Fed Indicator

A Fed inflation indicator for the period from 2019 to 2023, known as the five-year, five-year forward break-even rate, was at 2.46 percentage points on July 21, the most recent figure available, according to data compiled by Bloomberg. The gauge has climbed from this year’s low of 2.38 percentage points, reached on March 21. It touched a 2014 high of 2.68 percentage points in January.

The measure ranged between 2.33 percentage points and 2.89 percentage points in 2013. It averaged 2.73 percentage points for the past five years.

The U.S. 10-year break-even rate, the gap between yields on 10-year notes and comparable TIPS that signals trader expectations for inflation over the life of the debt, was 2.24 percentage points today, compared with an average 2.19 percentage points over the past five years.

The Treasury said today it will auction $29 billion in two- year notes on July 28, $35 billion in five-year notes on July 29 and $29 billion in seven-year notes on July 30. It will also sell $15 billion in two-year floating-rate debt on July 30.