Back From Post-CPI Firms

Tsys have eased back from their post-CPI extremes. Could it be the fact that markets were already comfortable with the idea of a skip at tomorrow’s FOMC? That would have played a part, with a few bp of tightening coming out of the related FOMC-dated OIS contract after only 6bp of tightening was priced in pre-data.

• Still, markets are pricing in greater chances of one more hike from the FOMC (vs. no more) come the end of the July gathering (albeit shy of pre-data levels, with ~17bp of hikes still showing through that timeframe).
• We have noted the incremental hawkish pressures from professional and hospital services and food away from home (which filter into core PCE) readings in the inflation data, although it’s a bit of a stretch to layer that into the move.
• The bid in equities will be helping.
• Existing long positioning (the J.P.Morgan Tsy client survey showed the most outright longs since Nov ’19) may have limited the scope for a meaningful richening move given the above factors and the lack of notable deviation in the data vs. wider consensus
• Cash Tsys run 2bp richer to 2bp cheaper as a result, with a steepening impetus intact.