/TIPS: Wells Fargo strategists.....>

US TSYS/RESEARCH: /TIPS: Wells Fargo strategists "think that action in nominal

yields will largely dictate the behavior of the 10y-30y breakevens in coming

weeks. Better news on core inflation may have helped to put a bit of a floor

under long-term breakevens in case Treasuries rally, while a selloff in nominal

Treasuries would give breakevens more room to move higher. Consequently, we

suggest clients incorporate their views on nominal yields and curves, thinking

about positioning in TIPS breakevens between now and the next CPI report." 

- They add that also "year-end dynamics may start to weigh in soon. Some

mandates with TIPS allocations may feel inclined to lock in gains, pare back

risks, and prepare for a typical December dropoff in liquidity putting another

obstacle in the path of breakevens moving higher in the near term." 

- They also say that "on the flipside, a sizable bearish shift in nominal

yields, particularly if it is led by the long-maturity sector, could help

breakevens rally. In fact, TIPS could do quite well if headlines related to the

anticipated jump in net Treasury supply and likely deterioration in the U.S.

fiscal standing caused nominal market to sell off."