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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Global-Fixed-Income-Strategy-TIP-toeing

Perspectives

Global Fixed Income Strategy | TIP-toeing

Kris Xippolitos

By Kris Xippolitos

Head - Fixed Income Strategy

March 12, 2020Posted InFixed Income and Investment Strategy

With markets focused more on equity, credit, and interest rate volatility, inflation expectations have also taken a nosedive. Using the US Treasury Inflation Protected Securities (TIPS) market as a gauge, inflation expectations in the US have fallen to their lowest levels since the Global Financial Crisis. 10-year inflation breakeven spreads, which is the difference between nominal US Treasury (UST) yields and TIPS yields, has now dropped below 1.0%.

Anticipating the impact to CPI, investors fled the TIPS asset class severely, with the market losing over 3%. Unfortunately, we came into this sell-off with an overweight in TIPS. Trade protectionism, easy monetary policy and relatively cheap valuations left us comfortable with this view. We are inclined to keep our overweight in US TIPS. The collapse in inflation breakeven spreads and decline in real yields has been sharp and already implies a weak economic outlook, in our view. While we should not rely on a similar outcome, the 12-month return in US TIPS following the 2008 collapse in real yields was nearly 15%, or 1700 basis points better than nominal UST bonds. At the same time, if US yields reprice higher due to overly exaggerated virus fears, TIPS are also in a position to perform better than nominal UST. 

For now, it seems oil prices will remain weak and volatile. This can make trading the TIPS market over the near-term quite challenging. Tactically, we would point out that oil price fluctuations can have greater impact on shorter duration TIPS, while rate volatility can have a larger impact on longer-dated bonds. However, for long-term fixed-income investors, we think current valuations in the TIPS market presents an interesting opportunity. 

Read Global Fixed Income Strategy: TIP-toeing