HOT CPI, Curve Inversions and Growing Chance of 100Bp Hike

A lot to unpack Wednesday: heavy selling on higher than expected June CPI data: CPI for Services (60% of the whole) is +0.9% MoM, +6.2% YoY; CPI for Goods (40%) is +2.1% MoM +13.6% YoY; Housing related prices were up 0.8% in June. Owners’ Equivalent Rent was +0.7% MoM, +5.5% YoY, highest since 1990.

• Short end rates remained under heavy sell pressure while the long end started to bounce soon after, 30Y bonds had extended session highs by midmorning: broad 30YY range from 3.2256% high to 3.0643% low. Decent $19B 30Y auction re-open (912810TG3) stop through: 3.115% high yield vs. 3.135% WI added to the bounce.
• Trading desks struggled for a good reason to explain the price action as curves extended inversion to new 16+ year lows (21s10s -14.257 to 22.506). Certainly debatable, was a theory over peaking inflation and whether the Fed may be near the end of hawkish policy had spurred the bounce in intermediates to long end.
• Explaining Inversion: heavy short end selling persisted on strong chance of 100bp hike at end of the month. Underscored late: lead quarterly Eurodollar futures EDU2 futures gapped lower, well past earlier CPI session lows to 96.34 (-34.5) after Atlanta Fed Bostic comments of "concerning" CPI while, "everything is in play" the Fed is "not wedded to any specific course of Fed action".
• Chances of a 100bp rate hike at the end of the month jumped from single digits to close to 75% after the move. Note, Fed goes into media blackout at midnight Friday -- going to hear more pop-up comments from Fed speakers by then.