Flatter Ahead Of CPI

TYU2 is little changed vs. late NY levels, last +0-02 at 119-17+.

• Note that we published a podcast interview with St. Louis Fed President Bullard late on Tuesday, with Bullard stressing that the Fed will be prepared to hold interest rates "higher for longer" should inflation continue to surprise to the upside, and market pricing will need to adjust accordingly. He also noted that when it comes to terminal rates “I think the destination is a little bit higher than what I would have thought even a couple months ago because inflation has continued to broaden out and doesn't look like it's turning the corner at least based on the evidence we have today.”
• When questioned on the prospect of an inter-meeting rate hike Bullard told us that Jackson Hole falls in the current inter-meeting period, "the Chair could use that if he thinks it's appropriate to signal changes in monetary policy."
• To recap, Tuesday saw the curve bear flatten, with the major benchmark Tsys running 0.5-6.5bp cheaper come the bell. The space finished the session off of cheapest levels, within tight ranges on sub-average volume, with a lack of meaningful catalysts apparent (some flagged concession ahead of the mid-month auction cycle, which got underway with a well-received round of 3-Year supply). Note the likes of the 2-/10- & 5-/30-Year yield spreads went out at session flats, with the former registering fresh cycle lows, testing the -50bp level.
• When it comes to auction specifics, 3-Year supply stopped through WI by 0.3bp, with the cover ratio edging higher, printing incrementally above its recent averages as dealer takedown cratered to record lows.
• A TU/UXY block steepener (+14K/-5K) headlined on the flow side on Tuesday.
• CPI data presents the focal point on Wednesday, with the Chinese & German (final) readings due before the U.S. equivalent (see our full preview of that data release here). Elsewhere, real average earnings data & 10-Year Tsy supply are due in NY hours, while Fedspeak will come from Evans & Kashkari.