HALISTER1: RATES: ‘Still More Room for Outperformance’ in TIPS, TD Says

RATES: ‘Still More Room for Outperformance’ in TIPS, TD Says

(Bloomberg) -- There’s value in owning TIPS breakevens, “particularly out the curve,” amid gradually firming underlying inflation fundamentals, recovering oil prices recovering, and rebounding U.S. growth momentum, TD strategists led by Priya Misra say in note.
  • Other positives for BEs include strengthening CPI fundamentals, Fed concern about low survey-based inflation expectations, and lower TIPS supply
  • 5y5y BEs are “cheap” as “much of the recent increase in BEs can be explained by the move higher in oil, financial conditions, and short rates”
  • TD recommends long 10Y breakevens and 5/30 breakeven curve steepeners; “any auction-related underperformance” at tomorrow’s $11b 10Y TIPS reopening provides opportunity for these positions
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

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Priya Misra (TD Securities USA LLC)

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