TIPS are issued by the U.S. Treasury Department. In the second month of every quarter, February, May, August, and November, the Office of Debt Management in the Treasury Department holds a meeting on how it will borrow and fund the government's operations.

It's called the quarterly refunding meeting. After the meeting, they will publish a calendar that lists the dates and the type of debt the government will sell.

The actual selling is done by a Dutch auction. The Treasury Department makes an announcement a few days before the actual auction date about what it will sell and how much it will sell. The auction will close at a set time.

The bond dealers will submit bids. These bids are called competitive bids. Others, including the general public, can submit orders but they can't specify a price. These bids are called noncompetitive bids. The noncompetitive bidders will accept whatever the final yield comes out to be.

Here's a simple example. Suppose the Treasury Department is selling $9 billion 10-year TIPS and it receives six competitive bids plus a number of noncompetitive bids as follows:

The final yield from this auction would be 2.4%. That's the yield at which Treasury will be able to sell all $9 billion (the auction "clears").

Every successful bidder will receive the same yield but not all bidders will receive the full quantity they wanted. Bidders A, B, and C will get the full quantity they bid, because their bids were higher than the final price (lower yield). Noncompetitive bidders will get their $0.5 billion. Bidder D will get only $0.5 billion even though it wanted $3 billion. Bidders E and F will get nothing because their bids were too low.

Retail investors take a free ride with noncompetitive bids. They will always receive the same yield as successful competitive bidders. They will always get all the bonds they want. Noncompetitive bids are a very good deal.