Curve Flattens After Volatile Post-CPI Session

TYH3 deals at 112-12+, +0-02, in line with levels seen late in yesterday's NY session.

• Cash Tsys finished flat to 11bps cheaper across the major benchmarks on Tuesday, as the curve flattened.
• Tsys were volatile in the immediate aftermath of the January CPI print, both MoM headline and Core came in as expected however the YoY measure was slightly firmer than expected.
• Pressure then came as block sales in TY and FV weighed, meaning Tsys pared gains from session highs.
• Pressure extended as Dallas Fed President Logan said rate increases could last longer than previously anticipated. Richmond Fed President Barkin then noted the central bank may have to do more to fight inflation.
• A brief recovery was facilitated by comments from Philadelphia Fed President Harker who said Fed is likely close to done on tightening.
• Late in the NY session NY Fed President Williams reiterated comments seen in previous communique that inflation was still elevated and further rate increases are required.
• President Biden announced that Fed VC Brainard will be appointed as his Economic Advisor.
• OIS markets are pricing a ~25bp rate hike in March, with ~20bp of tightening priced into the May Fed meetingm little changed in recent sessions. The terminal rate is seen at 5.25%, rising ~5bps yesterday.
• 1-Year MLF from China headines the Asia-Pac session. Further out we have CPI/RPI from the UK, Empire Manufacturing and Retail Sales. We also have the latest 20-Year Tsy Supply