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Huge CPI Relief Rally Holds

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Huge relief rally in rates (30YY taps 4.0623% low vs 4.2884% high) and stocks (ESZ2 +191.5 at 3947.0) after lower than expected Oct CPI (+0.4% MoM vs. 0.6% est, core +0.27% unrounded vs forecast of 0.5%) cooled rate hike expectations: Dec cumulative down to 49.8bp vs. 57.5bp earlier, 84.7bp to 4.69% for Feb'23 with terminal in May'23 at 4.885%.

  • Upbeat but cautious comments from various Fed speakers on the day:
    • Dallas Fed Logan: "While I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving, I also believe a slower pace should not be taken to represent easier policy," she said in openings remarks at a Fed conference.
    • Cleveland President Loretta Mester: “Despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little."
  • Trading desks note some prop/fast$ selling on the highs, technical selling after Tsy 10Y futures crossed 50-day EMA of 112-12.5 to 112-17 high (+2-06.5), to 112-10 last.
  • Tys climb back near midday highs after strong $21B 30Y auction (912810TL2): 3.2bp stop-through with 4.080% high yield vs. 4.112% WI; 2.42x bid-to-cover vs. 2.39x prior month.
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Huge relief rally in rates (30YY taps 4.0623% low vs 4.2884% high) and stocks (ESZ2 +191.5 at 3947.0) after lower than expected Oct CPI (+0.4% MoM vs. 0.6% est, core +0.27% unrounded vs forecast of 0.5%) cooled rate hike expectations: Dec cumulative down to 49.8bp vs. 57.5bp earlier, 84.7bp to 4.69% for Feb'23 with terminal in May'23 at 4.885%.

  • Upbeat but cautious comments from various Fed speakers on the day:
    • Dallas Fed Logan: "While I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving, I also believe a slower pace should not be taken to represent easier policy," she said in openings remarks at a Fed conference.
    • Cleveland President Loretta Mester: “Despite the moves we have made so far, given that inflation has consistently proven to be more persistent than expected and there are significant costs of continued high inflation, I currently view the larger risks as coming from tightening too little."
  • Trading desks note some prop/fast$ selling on the highs, technical selling after Tsy 10Y futures crossed 50-day EMA of 112-12.5 to 112-17 high (+2-06.5), to 112-10 last.
  • Tys climb back near midday highs after strong $21B 30Y auction (912810TL2): 3.2bp stop-through with 4.080% high yield vs. 4.112% WI; 2.42x bid-to-cover vs. 2.39x prior month.