Halister News

(Bloomberg) -- Even after Friday’s sharp drop, 10Y TIPS breakevens “look rich given the trend in inflation and a Fed that continues to hike amid sustained faith in the Phillips curve,” TD strategists led by Priya Misra say in note.

• They recommend 10Y TIPS breakeven tighteners at 186.5bp (Thursday’s close at 189.5bp was highest since May), targeting 170bp, stop at 195bp
• Fed “continues to largely shrug off the weakness in inflation as transitory”  
• Next week’s 30Y TIPS reopening has potential to put pressure on breakevens, which remain ~20bp higher than pre-election levels
• Risks to trade include a rebound in oil prices and an agreement on tax cuts, which appears unlikely over next several weeks
• NOTE: Phillips curve is an economic model that correlates higher inflation with decreased unemployment

To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen

--STEPHEN FOXWELL

--GREG SULLIVAN