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Bond Auction Tail Reverses Post-CPI Rate Gains

Choppy session on a wide range -- rates finishing weaker -- nearly back to last week's lows. Rates and equities gapped lower following surge in June core CPI +0.9% vs. 0.4% exp.
  • Rising inflation more localized than systemic w/economists pointing to sharp rise in used car prices and supply-chain issues w/ semiconductors. Volume surged on post-data chop, markets posting modest gains amid two-way flow on lows lows.
  • Rates gradually climbed into midday but an unexpected Bond auction tail shook things up: Tsys gapped lower after $24B 30Y Bond auction re-open (912810SX7) tails 2.3Bp: 2.000% high yield vs. 1.977% WI; 2.19x bid-to-cover off 2.29x 5 auction avg.
  • 30YY climbed to 2.0537% post auction highs amid heavy volume. Sell stops contributed to the move. Equities traded weaker as well, but drawing some dip buy support ahead more bank earnings Wednesday.
  • SF Fed Pres Daly sees inflation as temporary, but positioned to taper late '21 - early '22.
  • The 2-Yr yield is up 2.8bps at 0.2548%, 5-Yr is up 5bps at 0.8444%, 10-Yr is up 4.5bps at 1.4099%, and 30-Yr is up 3.3bps at 2.0308%.

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