Inflation breakeven rates, or the yield premiums on regular Treasuries over Treasury Inflation Protected Securities (TIPS), increased for a second day but were heading for a third consecutive week of decline.
The 10-year TIPS breakeven rate, or the yield difference between 10-year TIPS and regular 10-year Treasury notes, was last at 1.85 percent, up 2 basis points from late Thursday but down nearly 2 basis points on the week.
This barometer on investors' inflation outlook in the next decade sagged to 1.77 percent on Thursday, which was the lowest since Nov. 9, according to Tradeweb and Reuters data.
Breakeven rates had fallen earlier this week in response to a disappointing reading on the government's Consumer Price Index for April released last Friday. They reversed their decline following strong investor demand at an $11 billion 10-year TIPS auction on Thursday.
"We attribute the weak performance to soft recent U.S. inflation data," Well Fargo Securities senior strategists Michael Schumacher and Boris Rjavinski wrote in a research note.
In the 12 months through April, the CPI, which TIPS principal and interest payments are benchmarked against, was up 2.2 percent, slower than the 2.4 percent increase in March.
Some analysts raised the risk of a further decline in TIPS breakeven rates if major oil producers fail to agree on an extension of their current production cuts at a meeting next week.
Moreover, investors who had been bullish on TIPS may scale back those positions even more if U.S. President Donald Trump and leading Republican lawmakers continue to struggle to implement their perceived pro-growth economic policies, they said.
Investors had piled into TIPS as a part of the reflation or "Trumpflation" trade on the notion the U.S. economy would accelerate from a rapid enactment of tax reform, looser regulations and infrastructure spending once Trump took office.
In early Friday trading, the three major U.S. stock indexes opened higher with the S&P 500 index last up 0.6 percent.
U.S. oil futures were up 1.6 percent at $50.14 a barrel after touching their highest level in over three weeks.
(Reporting by Richard Leong; Editing by Andrea Ricci)
GLOBALES: U.S. TIPS breakeven rates rise, on track for 3rd week of decline
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