Retail Sales Surge Green Lights Longer Period of Rate Hikes

Bonds hold weaker levels/near lows after the bell, 2s10s curve well off this morning's 40-year inverted low in 2s10s from -91.943 to -80.405 in the first half, unconfirmed talk of large fund driven unwind in play.

• Tsys had sold off after this morning's higher than expected Jan Retail Sales (3.0% vs. +1.9% forecasted, ex-auto/gas at +2.6% vs. -0.4% in Dec the strongest print since March 2021) 2s10s extended inversion amid brief speculation over larger rate hikes over extended period from the Fed.
• Pricing larger hikes is moderating, however, with short end outperforming, while pricing in longer period of hikes remains. Fed funds implied hike for Mar'23 steady at 26.8bp, May'23 cumulative steady 47.3bp to 5.052%, Jun'23 at 61.4bp to 5.194%, while terminal rate has slipped to 5.24% in Aug'23 from 5.29% this morning.
• Robust overall volumes, TYH3 >1.6M, rate locks weighing w/ $24B Amgen 8pt mega-deal and $5B MUFG 5pt launched in second half.
• Tsy futures held weaker/near midday lows after $15B 20Y bond auction (912810TQ1) comes out nearly on the screws: 3.977% high yield vs. 3.975% WI; 2.54x bid-to-cover vs. prior month's 2.83x.
• Tsy Mar/Jun futures roll also underway ahead first notice date of Tuesday, February 28.