Halister News

(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)