Modest Cheapening Overnight, CPI Eyed

Spill over from weakness in ACGBs coupled with block sales in FV & TY futures applied some light pressure in pre-CPI Asia-Pac trade, leaving the major cash Tsy benchmarks 1.0-2.5bp cheaper as we moved towards London hours, with modest bear steepening of the curve in play.

• TYZ2 deals 0-06+ cheaper on the session, printing 111-09, 0-00+ off the base of its 0-08+ session range, on limited volume of ~59K.
• There hasn’t been much in the way of meaningful headline flow cross, outside of Fed Governor Bowman flagging uncertainty re: the required terminal rate of the current hiking cycle, as she reaffirmed the prospect of sizable hikes until inflation falls, alongside the need for restrictive policy settings for some time.
• FOMC dated OIS currently prices a terminal rate of ~4.65%, with ~74bp of tightening priced for next month’s FOMC.
• The previously flagged block sales in FV (-2K) & TY (-2.5K, -1.5K & -1.6K) futures were also accompanied by a block buyer of TYX2 110.00 puts (+5K)
• Gilt market gyrations and the impending U.S. CPI report provide the two focal points on Thursday, (see our full preview of the CPI release here). Elsewhere, weekly jobless claims data, 30-Year Tsy supply and Fedpseak from Waller, Cook & George will hit during NY hours.