BMO analyst Aaron Kohli expects a......>

US TSYS/TIPS: BMO analyst Aaron Kohli expects a "stop close to the screws" at

1pm $14B 5Y TIPS reopening as the auction's "liquidity provision," and "tax cut

optimism and high real yld levels offset rich breakevens, stretched crude

positions and a hawkish Fed."

- He adds "positive tax headlines" & "inflation seasonals suggest TIPS will

perform well in the coming months" but "we doubt" the gains' longevity; "biggest

risk" of TIPS mkt is "continued absence of stronger inflation (core-CPI mixed

signs of strength, disappointing Nov read). We see some near-term upside to

owning TIPS in the new yr, but that view dims considerably as we look further"

into future. 

- Kohli said likely will be into 2018 "some risk-positive sentiment" from tax

headlines &  "seasonal equity performance which shd bring some buyers into

inflation products." He noted US real ylds rose "as they often do seasonally in

Dec," so "auction at these levels would be the highest since 2015," thus "fairly

solid value proposition for real money buyers, but even deflated levels of 5-yr

breakevens don't look" esp. "cheap" w/ "anemic CPI backdrop" esp. core CPI.