CPI Day

U.S. Tsys saw some very light pressure on the back of firmer than expected Chinese inflation data but have moved off Asia cheaps, aided by a downtick in Chinese equities. TYZ1 last -0-04 at 131-23, operating within a 0-05 range in Asia hours. Cash Tsys run 0.5-1.0bp cheaper across the curve. China's NBS noted that the weather and commodity prices impacted October's CPI reading, while the PPI reading was driven by tight supply in the energy and materials spaces. The limited reaction is probably a case of these being known factors when it comes to the broader inflationary picture, as well as a sense of the market having bigger fish to fry later today i.e. U.S. CPI. 30-Year bond supply provides the other notable risk event on Wednesday's local docket, coming in the wake of two tailing Tsy auctions which experienced lower than average cover ratios, even with the notional size on offer being cut vs. prev. auctions. Elsewhere, focus will fall on whether or not Evergrande makes a payment covering coupons on US$-denominated debt before the grace period ends later today.

• To recap, Tuesday's rally fell short of a test of the recent TYZ1 highs (printed on Friday). The cash Tsy curve bull flattened, with 2s firming by ~2bp, while 30s richened by ~6.5bp come the close. This came after modest bull steepening during Asia-Pac hours, with the early bid linked to a BBG source report which suggested that Fed Governor Brainard was a "serious rival" for Fed Chair Powell in the race to sit atop the central bank. There was also a sense of international impetus evident, with the long end of the UK & German curves outperforming Tsys. The space was helped off best levels by the latest 10-Year Tsy auction, which tailed by a little over 1bp, with the cover ratio falling below the recent average, while end user demand remained elevated in a historical sense, even as dealer participation saw a minor uptick.