Late Risk-On Unwinds, Focus On Thu CPI

Late risk-on unwinds Wednesday as accounts scaled back tactical bets ahead Thursday's key inflation metric Jan CPI (MoM 0.6% rev, 0.4%; YoY 7.0%, 7.2%).
Yields quietly gained after the bell (10YY 1.9433% vs. 1.9071% in post-10Y auction trade) while stocks pared gains after marching to new late session high of 4580.0 after crossing 50-day EMA of 4563.47 earlier.

• Tsy futures extends session highs after strong $37B 10Y note auction (91282CDY4) trades through 2.3bp: 1.904% high yield vs. 1.927% WI; 2.68x bid-to-cover better than last month's 2.43x but still shy a 2.51x 5-month average.
  • Indirect take-up surges to 77.56% vs. 65.53% last month (lowest since July '21); direct bidder take-up falls to 15.00% vs. 17.86%, while primary dealer take-up shrinks to record low of 7.44% vs. 16.61% prior.
• Waffles from Cleveland Fed President Loretta Mester, FI markets see-sawed around midday comments that Mester Wants Faster Hikes If Inflation Stays .. but sees No Compelling Case for 50BP Fed Hike.
• Mixed Eurodollar/Tsy option trade: Better upside Eurodollar call skew buying in first half a departure from better downside / rate-hike insurance buying via low delta puts (positions remain on books of course, with some rolling out to mid-late year put buying last few sessions). Meanwhile, Tsy options saw better put skew buying, ATM vol sales.
• After the bell, 2-Yr yield is up 0.5bps at 1.3461%, 5-Yr is down 1.8bps at 1.7985%, 10-Yr is down 3.6bps at 1.927%, and 30-Yr is down 2.6bps at 2.2313%.