Contained Monday Trade Sees Small Portion Of CPI Uptick Unwind

TYZ2 deals just below its late NY high, -0-01 at 112-03.

• Cash Tsys were 2-6bp cheaper across the curve on Monday, with bear flattening apparent.
• Comments from Fed Governor Waller set the tone in Monday’s Asia session, pointing to a ways to go when it comes to tightening, as he stressed that markets got well in front of themselves in the wake of last week’s CPI print (Monday’s move only represented a modest retrace of the post-data rally). Note that Waller did point to the potential for a step down to a 50bp hike at the Dec FOMC.
• Later on Monday Fed Vice Chair Brainard pointed to a probable slowing of rate hikes “soon,” while the remainder of her comments were not as hawkish as Waller’s, as she appeared more cognisant re: the lagged impact of monetary policy. Brainard’s comments allowed the space to work away from session cheaps.
• OIS pricing surrounding the Dec FOMC meeting was little changed on Monday, printing around 52bp at the close, with a further ~35bp of tightening priced for the February FOMC, once again little changed on the day after blipping higher on Waller’s comments before retracing as Brainard spoke.
• Comments from NY Fed President Williams, monthly economic activity data out of China and the latest round of MLF operations from the PBoC provide the key risk events during Tuesday’s Asia-Pac session. Further out, PPI data and Fedspeak from Cook, Barr & Harker will cross in NY hours on Tuesday.