Investors are flouting signs of strong inflation and are selling off TIPS, even as commodity prices hover near all-time highs. Ten-year breakevens narrowed from 268 basis points to 235bps on June 9, showing they have cheapened relative to nominal Treasuries. "Investors have gotten burned shorting the nominal market, so they're turning to TIPS," according to Michael Pond, interest-rate strategist at Barclays Capital.
The sell-off is especially surprising in the 10-year sector, where demand is driven by long-term inflation expectations. This contrasts with the front of the curve, where demand is often influenced by carry considerations, according to Charles Lee, an interest-rate strategist at UBS.
