RESEARCH ROUNDUP: 30Y TIPS Reopening Faces Valuation Headwinds
(Bloomberg) -- $5b 30Y TIPS reopening at 1pm ET is unattractive on most valuation measures, and faces other headwinds, including prospect of Dec. Fed rate hike, strategists say; auction’s small size and CPI momentum are among tailwinds.
- BMO (unsigned)
- Small tail is likely, “despite the fact that TIPS are in vogue” and flatness of breakeven curve, because issue “looks unattractive” on outright yield basis
- Other negatives include “fragility of core CPI,” potential for Dec. Fed hike, limited set-up time following today’s ECB meeting
- Other positives include “solid” ETF and mutual fund flows in September, 0.09yr month-end index extension, small auction size, “substantial pickup in UK breakevens” and higher value of auction liquidity at long end
- Citi (Jabaz Mathai)
- On breakeven, “we are not particularly enthusiastic,” however, 30Y TIPS “are a reasonable buy on a real yield basis” and attractive on asset swap
- Small size also supportive, and Oct. 30Y reopenings “have never tailed” since 2011
- Nomura (unsigned)
- Positives include uncertainty about December Fed rate increases, “positive momentum” for CPI and cheapness vs U.K. linkers; small size also supportive
- Negatives include valuation, especially on breakeven, and recent long-end volatility (i.e. curve steepening)
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Jabaz Mathai (Citigroup Inc)
To de-activate this alert, click
hereUUID: 7947283