TIPS Strategy: Picking up the pieces

Breakevens fell 15bp, 8bp and 2bp across the 5-, 10- and 30-year sectors, respectively, net of carry and seasonal adjustment—their worst week since Liberation Day. Front-end breakevens underperformed implied energy hedges by close to 10bp. The decline coincided with falling commodity prices and the midterm results. We see the election-related shift in the increasing likelihood of Middle East de-escalation as a key inflation-market read-through, while the domestic-policy implications for 2027 inflation appear more marginal. Labor-market data remained firm: payrolls rose 165k versus 70k consensus, revisions lifted the three-month average to 137k, and the four-week average of claims fell to 195k. PMIs continued to signal solid growth, despite disappointing relative to consensus. We estimate the 1Yx1Y inflation risk premium was about 30bp at end-October. Survey-based expectations may be a potential lower bound for inflation pricing, as prior large unwinds have stabilized around those level