Flatter Ahead Of CPI

TYM2 operates around late NY levels, last dealing +0-02+ at 118-27.

• To recap, the cash Tsy curve twist flattened on Tuesday, with 2s cheapening by ~2bp, while the rest of the major benchmarks firmed, led by the 7-/10-Year zone which was ~4.5bp richer on the day come the bell. This came after a fairly frenetic Asia-Pac session, which saw notable swings in wider risk-appetite that were largely flow-orientated. 10-Year Tsy yields closed back below the psychological 3% level, just, after 3 consecutive closes above.
• Fedspeak kept the very front end of the curve in check, with continued focus on “expeditious” tightening, while the base case of 50bp hikes over the next couple of meetings remained front and centre. Note that Cleveland Fed President Mester (’22 voter) wouldn’t rule out 75bp moves “forever”, although still holds a preference for back-to-back 50bp moves at the next couple of meetings (in line with consensus). New York Fed President Williams was hopeful re: the prospect of a soft landing, although warned of risks re: unemployment, defining a soft landing as a healthy jobs market with inflation easing.
• 3-Year Tsy supply stopped through WI by 0.3bp, while dealer takedown cratered to the lowest on record, with the cover ratio nudging further above its recent average.
• A notable block buy in UXY futures (+6.654) supported the longer end during the NY morning, while an uptick in equities during the NY afternoon allowed the space to move back from best levels.
• Asia-Pac hours will ne headlined by Chinese inflation data and comments from Atlanta Fed President Bostic (’24 voter). Note that Bostic has already spoke on several occasions in recent days, expressing his preference for 50bp rate hikes over the next two or three meetings.
• Furter out, CPI data headlines Wednesday’s NY docket, with real earnings readings, 10-Year Tsy supply and more Fedspeak (Bostic) due.