RBS on TIPS: Dealers Short Ten Year Sector
November 9th, 2009 12:41 am | by John Jansen |TIPS
Strong TIPS demand is unabated. TIPS breakevens continue to widen in the long end. 10y BEI has widened nearly 40bp over the past month, with a sizeable jump after this week’s FOMC meeting. The 10y BEI was at 1.94% the Friday before the Lehman bankruptcy September 15, 2008. Over the past week, BEI pushed solidly above that level, closing Wednesday at 2.13%, an all-time high over the period since LB. Dealers remain short 10y TIPS, so it’s not wise to fight the widening trend in 10y BEI.
3 Responses to “RBS on TIPS: Dealers Short Ten Year Sector”
By Brian on Nov 9, 2009 | Reply
JJ,
Are dealers outright short 10yr tips? If so why would that be a positive for a widening of the BE level?
By John Jansen on Nov 9, 2009 | Reply
Brian,
Regarding the dealer short in TIPS.
According to the information I posted, dealers are short that sector.
That would tend to widen the spread because the dealers who are short will at some time be forced to cover those shorts. Especially if the losses mount and even more so as we approach year end and the losses diminish the bonus pool.
By Brian on Nov 9, 2009 | Reply
Oh oh… my apologies, I misread the wording and took it to mean their shorts were currently contributing to the widening, not because of short covering, hence the reason for my disconnect. Any updates as to the liquidity in the TIPS mkt?