Investors Stay Hungry for Inflation-Protected Bonds | Sidnaz Blog

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Demand for inflation-protected bonds remains high despite a recent decline in Treasury yields, indicating that investors have long-term concerns about the impact of economic growth on interest rates.

Investors poured a net $1.2 billion into mutual funds that buy Treasury inflation-protected securities, or TIPS, in the week ended April 21, according to data from EPFR. It was the 29th consecutive week of inflows into such funds, the longest streak since 2010.

Yields of conventional Treasury bonds, which fall when prices rise, have slipped recently as concerns subsided that the Federal Reserve would raise interest rates sooner than projected and foreign investors returned after an early-year exit.

The yield on the benchmark 10-year Treasury note traded around 1.568% Monday, down from 1.749% at the end of March, according to data from Tradeweb.

Still, a measure of investors’ expectations for average annual inflation over the next decade has barely budged. The 10-year break-even rate, which reflects the yield premium on Treasurys over comparable TIPS, was trading around 2.349% Monday, according to data from TD Securities LLC.

The U.S. Federal Reserve building in Washington



Photo:

leah millis/Reuters

“Inflation is very top of mind,” said

Gennadiy Goldberg,

a U.S. rates strategist at TD Securities. The Fed has signaled it will allow headline inflation to overshoot their 2% target before raising benchmark rates, and rents, a large component of core inflation, have started to strengthen, he said.

Climbing inflation typically causes bond yields to rise as investors anticipate higher interest rates from the Fed and demand higher returns to adjust for the rising costs of goods and services. Large bond funds have been buying TIPS en masse to hedge against that risk, but prices of the securities have risen so high that demand has started to slacken, Mr. Goldberg said.

The yield of 10-year TIPS was around negative 0.784% Monday, compared with negative 0.626% on March 31, according to Tradeweb. Fund-management powerhouse

BlackRock Inc.


BLK 0.71%

has changed its TIPS allocation to neutral from overweight but still prefers inflation-protected debt to conventional government bonds, according to a research report published Monday.

In corporate debt markets, bonds of Diamond Sports Group jumped as high as 53 cents on the dollar Monday, up 10% from the previous week’s close, according to data from MarketAxess. Debt of the sports-marketing company for regional and youth teams has been lifted by the initiation of discussions of a marketing partnership with sports-betting companies, according to a report by LevFin Insights.

Write to Matt Wirz at matthieu.wirz@wsj.com

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