BMO Looking For Backup To Enter 2-/10-Year Flattener

BMO note that “in terms of how to trade the next two days, we’d use any backup in yields to accommodate the 10-year reopening as an opportunity for better placement for a 2s/10s flattener. The logic is straightforward – the 2-year sector is poised to absorb the brunt of any bearishness resulting from a higher-than-expected CPI print. This will also be the case in the event the consensus forecast is realized; the caveat being that duration could outperform on an outright basis with such an outcome. If CPI disappoints, the kneejerk might initially be steeper, but as inflation-premium is taken out of the longer end of the curve, the depths of the inversion will be retested as the lower-rate narrative quickly becomes more compelling if, in fact, the peak of inflation has already passed.”