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FI Shrugs Off Early CPI Driven Volatility, Focus on Thu's PPI

US TSYS
  • US FI markets are holding modest gains after the bell, relatively quiet after early CPI data generated volatility. Fast two-way on wide range post-data has segued to better buying with short end outperforming as markets continue to digest stronger than expected core services CPI while goods prices contracted.
  • Core CPI accelerated from 0.16% to 0.28% M/M in August, with a large part of the move driven by a relative airfares contribution of +0.09pps (the PCE source for which are PPI and not CPI). Combined with other details from the report, it sees the following preliminary core PCE estimates to be updated after tomorrow’s PPI data (with core PCE due Sep 29).
  • General opinion from trading desks: this morning's data does little to change Fed's policy path (no change next week but with a hawkish tone for year end if inflation percolates higher).
  • Rate hike projections through year end receded: Sep 20 FOMC is 2.3% w/ implied rate change of +0.06bp to 5.338%. November cumulative of +10.4p at 5.436, December cumulative of 12.2bp at 5.454%. Fed terminal at 5.45% in Jan'24.
  • Treasury futures holding modest gains after $20B 30Y auction reopen (912810TT5) tailed by 1bp: 4.345% high yield vs. 4.335% WI; 2.46x bid-to-cover vs. 2.42x in the prior month.
  • Focus turns to Thursday's August PPI, Retail Sales and Weekly Claims data.
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