Treasury Action: TIPS are outperforming nominals
Treasury Action: TIPS are outperforming nominals after the hotter than expected CPI report where annual rates accelerated. The pick up in average hourly and weekly real earnings was a major catalyst too. The 10-year breakeven (BE) climbed to nearly 186 bps from about 184 bps ahead of the data. It's up from the January 3 low of 167 bps. But while the spread is still well below the 220 bp high from 2018, it is nearing its widest level of the month of 187 which hadn't been seen since early December. Meanwhile, the 5-year BE rose to 177 bps, up from the 148 bps narrow for 2019, though it too is well off the 2018 peak of 217 bps from May. Inflation isn't a major problem currently, and although pressures are not likely to accelerate significantly near term, analysts see core PCE holding in the 1.8% y/y to 1.9% y/y realm over 1H, prices will be closely monitored for Fed clues.