Another Round Of Cheapening To Assess

T-Notes operate around their late NY lows after the reopen, last dealing unchanged at 132-31+.

• To recap, yields were biased higher during NY hours on Tuesday, firstly as a result of firmer than expected CPI data for the month of June, as the headline Y/Y reading hit the highest level witnessed since '08 (although some of that was unwound as the "transitory" argument remained in play, even as the core print topped exp., hitting multi-decade highs), with a fresh leg higher then seen after the 30-Year Tsy auction. The latter saw the space unwind the bear flattening that was in play after the aforementioned CPI prints. Yields 3-Years to further out the curve finished 4.0-5.0bp higher on the day as a result.
• In terms of auction specifics, the latest round of 30-Year Tsy supply saw a 2.4bp tail, as the cover ratio slid further below its recent average. Meanwhile, dealer participation jumped above its own recent average.
• An MNI interview with Dallas Fed President Kaplan ('23 voter) saw him note that he has raised his inflation forecast for the remainder of the year and into 2022 on a significant widening of price pressures, and urged more debate on pulling back asset purchases. Elsewhere, Richmond Fed President Barkin ('21 voter) noted that higher wages for lower-income workers are contributing to inflationary pressures in the U.S., suggesting that the inflationary outlook should be clearer come September. We also saw St. Louis Fed President Bullard ('22 voter) underscore his existing view, as he told the WSJ that he thinks "with the economy growing at 7% and the pandemic coming under better and better control, I think the time is right to pull back emergency measures." Finally, San Francisco Fed President Daly ('21 voter) told CNBC that a "strong economic recovery will allow the central bank to slow its asset purchases, possibly near the end of 2021."
• Highlights on the flow side included ~17K of the TYU1 132.50/134.50 strangle being sold in total on screen and via block. There were also 2x 5.0K block buys of FVU1 futures, bookending NY hours.
• The latest RBNZ monetary policy decision headlines the broader Asia-Pac docket on Wednesday, while focus during NY hours will switch to Fed Chair Powell's semi-annual testimony on the Hill.