10YY Crests 3.57% Post-PPI

Tsys remain weaker, gradually extending session lows since midmorning after some initial volatility post PPI. Tsy futures gapped lower after PPI comes out little higher than expected (MoM +0.3% vs. 0.2% est; ex F&E +0.4% vs. +0.2% est); U. of Mich. Sentiment (59.1 vs. 56.8 prior).

• Futures rebounded over half the initial move before selling off/extending lows again a half hour later, desks noted two-way positioning/unwinds ahead next week's CPI and FOMC. Notably, yield curves had considerably bear steepened off wk's 40Y lows: 2s10s tapped -74.466 high (+8.523).
• Trading desks eyed short end support in the face of next Monday's staggered auctions: 26W bills and 3Y Notes at 1130ET, 13W bills and 10Y Notes at 1300ET in order to maintains 2 day gap between last auction and settle.
• Focus turns to CPI for Nov next Tue (MoM 0.3% est, 7.3% YoY) and final FOMC of 2022 Wed afternoon.
• FOMC will step down the pace of rate hikes to 50bp at the December meeting. But it will likely signal via the Dot Plot that it intends to tighten by a further 75bp to a terminal rate above 5% in 2023.