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J.P.Morgan: Intermediate BEIs May Have Further Room To Narrow

US TSYS/TIPS

J.P.Morgan note that Thursday’s weakness in breakevens “accelerated following a poorly received 10-Year TIPS re-opening auction, as end-user demand declined 7.2ppts from the previous auction to 82.1%, the lowest such takedown since May 2020. After outperforming the drivers in our fair value model to start the week, 10-Year breakevens once again appear roughly 20bp cheap to our model estimates, more than twice the standard error. Nonetheless, with growth momentum slowing and liquidity still poor, we think intermediate breakevens have room to narrow further from current levels.”

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J.P.Morgan note that Thursday’s weakness in breakevens “accelerated following a poorly received 10-Year TIPS re-opening auction, as end-user demand declined 7.2ppts from the previous auction to 82.1%, the lowest such takedown since May 2020. After outperforming the drivers in our fair value model to start the week, 10-Year breakevens once again appear roughly 20bp cheap to our model estimates, more than twice the standard error. Nonetheless, with growth momentum slowing and liquidity still poor, we think intermediate breakevens have room to narrow further from current levels.”