J.P.Morgan: 10-Year TIPS Supply May Require Further Concession

J.P.Morgan note that Thursday will see the Treasury auction $14bn reopened 10-year TIPS, "$1bn larger than the last reopening auction in May. Ten-year breakevens have widened 11bp on a carry-adjusted basis since the new-issue auction on July 22, but have narrowed from their local wides. Similarly, while real yields have declined 6bp on a carry-adjusted basis over the period, they are 15bp off their local lows earlier this month. Finally 10-year breakevens now appear fairly priced after adjusting for their drivers, after having appeared rich earlier in the month. Though valuations are more attractive than they were earlier this month and some concession has been priced, we think the hawkish outcome at the FOMC meeting could lead to reduce end-user demand, and combined with a larger sized auction, should require a further concession to digest smoothly."