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UPDATE 1-U.S. TIPS breakeven rates recover after robust auction
May 18, 2017 / 7:56 PM / 7 months ago

UPDATE 1-U.S. TIPS breakeven rates recover after robust auction

* Record indirect bidder purchase at 10-year TIPS auction

* Ten-year TIPS breakeven rate hits lowest since Trump win

* Higher crude futures on hopes for output curb helps TIPS (Updates market action, adds quote)

By Richard Leong

NEW YORK, May 18 (Reuters) - The U.S. bond market’s gauges on inflation expectations rebounded on Thursday from their lowest levels since November on sizzling investor demand at an $11 billion auction of 10-year Treasury Inflation Protected Securities.

Oil futures, which rose on hopes the major producers would agree to extend their current output cuts next week, also buttressed the $1.24 trillion bond sector.

Earlier Thursday, TIPS breakeven rates, or the yield differences between TIPS and regular Treasuries, year TIPS and regular 10-year Treasury notes, had been on track to fall for a fifth straight session before the auction.

Traders had pared their bullish TIPS positions on concerns that domestic inflation would take longer than previously thought to reach the U.S. Federal Reserve’s 2 percent goal in the aftermath of a slower year-over-year rise in the government’s Consumer Price Index in April.

“I hope today’s auction represents a turning point. We are seeing a return to the reflation trade reasserting itself,” said Com Crocker, senior analyst at New Century Advisors LLC in New York.

Indirect bidders, including fund managers and overseas central banks, bought a record high share at the latest 10-year TIPS auction on Thursday.

In addition to signs of renewed investor appetite for TIPS, higher oil prices revived TIPS’ appeal as an inflation hedge, analysts said.

The 10-year TIPS inflation breakeven rate hit 1.77 percent earlier Thursday. That was the lowest since Nov. 9, the day after the election of U.S. Presidential Donald Trump.

The 10-year breakeven rate was last 1.83 percent, up 2 basis points on the day, Tradeweb and Reuters data showed.

The five-year TIPS breakeven rate was up 2 basis points at 1.73 percent late Thursday after hitting 1.69 percent, the lowest since Nov. 29.

U.S. oil futures settled up 28 cents, or 0.6 percent, at $49.35 a barrel on expectations that key producing countries would stick to production cuts to reduce a global crude glut.

Reporting by Richard Leong Editing by W Simon and Richard Chang

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