Washington wonders why investors asking for less inflation compensation

January 17
6:46 AM 2015

The Obama administration is asking Wall Street to explain why the yields investors are demanding to compensate them for inflation have dropped since August, the U.S. Treasury said on Friday.

The Treasury posed the question in a poll it is circulating among major dealers of U.S. securities. The Treasury is asking about the change in the spread between yields on fixed rate bonds and those indexed for inflation, which are known as TIPS. The spread is called the break-even rate.

A Treasury official said the administration is looking for views on whether the drivers have been technical or fundamental. A fundamental factor could be investors' views on the likelihood of deflation, he said.

"Comment on the drivers of the decline in break-evens as well as the supply and demand dynamic in the TIPS market," according to the text of the poll. "How would you characterize TIPS market liquidity."

The 10-year TIPS break-even rate has fallen about 0.75 percentage point from the beginning of August to 1.53 percent as of Friday, according to Reuters and Tradeweb data.

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