CPI On Deck

Core FI markets struggled to find much in the way of clear impetus during Asia-Pac hours, with focus on the impending U.S. CPI release. Chinese inflation data provided a downside miss. As we noted ahead of that dataset, a decrease in inflationary pressures leaves more room for policy easing (with Beijing already tipping their hat towards more pro-growth policy moves in recent months), but that didn’t do much for the space.

• TYH2 struggled to make headway above Tuesday’s high, last dealing +0-04 at 128-16+, while cash Tsys run within -/+0.5bp of Tuesday’s closing levels as of typing.
• To recap, cash Tsys finished Tuesday ~1.0-2.5bp richer, with some light bull flattening in play. 3-Year Tsy supply was well received, stopping through WI by 0.4bp, with the cover ratio holding steady around its recent averages as dealer takedown slid comfortably below its own recent averages. The space looked through Fed Chair Powell’s latest testimony on the hill, while hawkish comments from Mester, George & Bostic (pointing to the potential for a March rate hike/more aggressive balance sheet run off) had little impact, given the recent hawkish Fed repricing and adjustments in sell side views. Powell’s failure to introduce fresh, meaningful information and the well-received auction allowed the space to richen modestly. Flow of note included a TU block buy (+20.570) in the wake of the aforementioned 3-Year auction, in addition to TU (+9.0K), TY (+9.0K) & UXY (+5,750) block buys earlier in the session, which helped underpin during NY trade. The space was less reactive to the continued brisk IG$ issuance (when compared to last week).
• The aforementioned CPI release headlines the NY docket on Wednesday, with average hourly earnings also due. Supply comes in the form of 10-Year Tsys, while Fedspeak from Minneapolis Fed President Kashkari (’23 voter, dove) is also slated.