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Markets Roundup: Curves Flatten Ahead June CPI

  • Generally quiet trade Tuesday, carry-over support in intermediate (TYU3 +5.5 at 111-10, 3.976% yield) to long-end rates from Monday while curves scaled back a portion of steepening (2s10s -3.704 at -90.719) over the last week ahead tomorrow's CPI inflation metric.
  • Consensus puts core CPI inflation at 0.3% M/M in June as it slowed from a modest beat of 0.44% in May. There is no evidence that the downside miss in nonfarm payroll gains last Friday has deterred FOMC participants from signaling their preference to raise rates twice more this year.
  • An above-expected print and/or a report with strong details in ex-shelter services would reinforce the "higher for longer" theme; a miss most impactful for September pricing.
  • Fed Funds implied rates remain unchanged for the Jul 26 decision (+22bp) but beyond that have edged higher on the day after reversing an overnight decline that continued from yesterday’s second half softer trading.
  • Cumulative change from 5.08% effective: +22bp Jul (unch), +28.5bp Sep (unch), +35bp Nov (+1bp), +30bp Dec (+1bp), +21.5bp Jan (+1bp). Rates are first seen lower than they are today with the May meeting (-8bps, +0.5bp on the day). Cuts from Nov terminal: 5bp Dec’23, 63bp Jun’24 and 135bp Dec’24.
  • Fed speaker schedule for tomorrow includes: Richmond Fed Barkin (0830ET), MN Fed Kashkari (0945ET), Atlanta Fed Bostic (1300ET) and Cleveland Fed Mester (1600ET)

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