Fixed Income Recap

Consumer prices, as defined by the seasonally adjusted Consumer Price Index for All Urban Consumers, were unchanged in July and increased .1% ignoring food and energy. Although the data was in line with expectations, it reassured the market enough to spur buying in longer dated Treasuries – The 30-rallied a point and a half soon after the CPI release. TIPS underperformed comparable nominal coupon Treasuries on the CPI data as 10-year breakeven yields tightened by 8 bps from 1.81% to 1.73%. For new readers of the recap, breakevens are the difference between the yield on the nominal Treasury and the real yield on the TIPS of the same maturity. The difference in the yields is often used in the determination of inflation expectations over the life of the bonds, be it five, ten or twenty years. The Treasury has hinted at expanding TIPS issuance to the 30-year sector, which would give the market a new longer data point for breakevens.

Treasuries are on fire this morning, again with TIPS lagging behind, on weakness in stocks overseas. S&P futures are down 20 points with 45 minutes to go before the market opens. The ten-year is down just under three-quarters of a point to 3.49%.


Cliff J. Reynolds Jr., Investment Analyst