Traders set shorts into 1pm ET $12B....>

US TSYS/TIPS: Traders set shorts into 1pm ET $12B 10Y TIPS reopening; WI 10Y

TIPS cheapened: yield peaked for day around 0.428% at 8:16 am ET, which drew in

dip buyers; it recently was 0.415%. Natwest analysts noted "last CPI" was

"buoying TIPs but our early call is for a pullback in inflation next month. So

we do not want to chase it here."

- BMO's Aaron Kohli said "Fedspeak next wk will only make the mkt" take more

note of "Fed's hawkish reaction function. We cld get some lift in breakevens

from political headlines suggesting an Obamacare repeal (and increased odds of a

tax cut), but we'd fade such optimism." He cited auction stats "biased slightly

to weakness with 4 of the last 6 Sep. auctions tailing an average of 2.1bp."

- Kohli adds TIPS index extension at mo-end "essentially flat at 0.02 yrs and

shldn't bring in much structural demand. Breakevens are showing signs of turning

decidedly lower with 5-year breakevens failing at elevated levels, and 10s

having some difficulty at 1.88. We could easily correct to much lower levels if

CPI next month is soft again. That would make the August print appear the

aberration rather than the weak prints before it."