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Continued Inversion Post-CPI, PPI To Come

US TSYS
  • A recent small rally on risk-off does little to dent the largely one directional move lower overnight for front end Treasuries as markets continue to adjust to the large CPI beat, helped on their way by hawkish commentary from Mester (’22 voter) late yesterday, with some possible spillover from European sovereign yields sliding. Upcoming US bank earnings both today and tomorrow could also have an impact on sentiment.
  • The result has seen 2Y yields sit back at post-CPI highs but with 10Y yields off those levels, pushing 2s10s to new lows for the cycle at -24bps with that segment of the curve remaining the most inverted since 2000. The 3M to 10Y spread meanwhile sits largely unchanged on the day having slumped more than 25bps yesterday to 50bps, with the slide from 130bp at the start of July better capturing the recent deterioration in growth expectations.
  • 2YY +4.6bps at 3.201%, 5YY +4.7bps at 3.075%, 10YY +2.4bps at 2.958% and 30YY -0.1bps at 3.117%.
  • TYU2 trades 14 ticks lower at 118-15+ despite the trend needle still pointing north. Resistance is seen at 119-06 (Jul 13 high) beyond which lies the bull trigger at 120-16+ (Jul 6 high), whilst
  • Data: PPI inflation in focus at 0830ET after the large CPI beat with implications for core PCE.
  • Fedspeak: Gov Waller on the economic outlook with text plus Q&A – 1100ET
  • Bond issuance: US Tsy $45B 4Y – 1130ET
  • Bill issuance: $40B 8W bill auctions – 1130ET
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