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Market Roundup: Gap Bid Post 10Y Sale

US TSYS
Tsys trading higher, scaling back highs after strong $35B 10Y Tsy note auction stopped 2.9bp through w/ 3.613% high yield (3.642%WI going into the auction cutoff). Yield curves bending flatter, but still off Mon's 40 year inverted lows (2s10s currently -2.056 at -81.562 vs. -84.734 late Monday).
  • Tsys and EGBs traded weaker in the first half amid ongoing central bank telegraphing further (and larger if necessary) rate hikes needed to tamp down inflation.
  • NY Fed Pres Williams economic outlook at WSJ live event cited a "lot of uncertainty around inflation" specifically services sector prices that may necessitate more hikes, adding "peak rate of 5-5.25% .. still a reasonable view."
  • Earlier ECB commentary highlighted by MNI's event with Klaas Knot who said a 50bp hike was possible in May (as well as March) pending inflation developments. Kazaks called for "significantly" restrictive rates while de Guindos wouldn't rule out further hikes past March.
  • Fed funds implied hike for Mar'23 at 26.1bp (+.7), May'23 cumulative 44.9bp to 5.031%, Jun'23 56.2bp (+1.9) to 5.144%, terminal at 5.16% in Aug'23.

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