Traders are cautious on the 1pm ET.....>

US TSYS/TIPS: Traders are cautious on the 1pm ET US$12B 10Y TIPS reopening, but

it has cheapened up a bit this morning then some dip buying came in.

- SMRA's John Canavan: reopening "raises all new cash;" WI 10Y TIPS had "roll of

a little more than a bp" tho "always difficult to get a good handle on TIPS WIs.

The 10-yr breakeven rate climbed from 1.752% on Aug. 29 to 1.878% 2 days ago"

but "has fallen back" since FOMC "to 1.848% currently as the increased

likelihood of Fed rate hikes leaves" traders "less concerned about inflation"

wh/ may "work against" demand; "likely to be little mo-end need"  based on

latest mo-end extension figures. 

- BMO's Aaron Kohli: Auction "not strong value proposition" amid breakevens

runup; but sector flows strong: "about $2.2B in (TIPS) funds we track in Aug,

which shd provide some lift" for auction. He added inflation "bouncing somewhat

and oil has stabilized above $50" but breakeven move "mostly bakes this in." 

- HISTORY: July original $13B 10Y TIPS auction: 0.375% coupon, weak 1.98

bid/cover, 0.489% high yield; also 52.5% indirects, 8.05% directs and 39.5%

dealers.