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Steeper Post-CPI, But Off Extremes In Wake Of Fedspeak

US TSYS

TYU2 trades marginally above late NY levels after the contract pulled back sharply from intraday highs during Wednesday trade, last +0-02 at 119-26. Cash Tsys will be closed until London hours owing to the observance of a Japanese holiday, which will limit activity in futures.

  • To recap, Cash Tsys twist steepened on Wednesday, with the major benchmarks running 6bp richer to 5bp cheaper come the bell, pivoting around 10s. A 0.2ppt miss for each of the major CPI metrics triggered a notable round of bull steepening, before hawkish Fedspeak from Minneapolis Fed President Kashkari (’23 voter) and Chicago Fed President Evens (who retires later this year, ahead of the Chicago Fed rotating on to voting status in ’23) helped to reverse a chunk of the data-driven richening. A reminder that Kashkari & Evans were two of the more dovish voices on the FOMC not so long ago.
  • Also note that WSJ Fed whisperer Timiraos wrote “Wednesday’s inflation report keeps the Fed’s door open to a half-point rate increase in September if subsequent data confirm price pressures are easing. But a 0.75-point rise remains possible after recent reports of accelerating growth in jobs and wages point to significant income gains that could sustain stronger spending and higher prices.”
  • FOMC rate hike premium eased a touch on the day, with Sep FOMC dated OIS now pricing ~63bp of tightening, back from the ~70bp seen and Tuesday, but off Wednesday’s low of ~59bp.
  • 10-Year Tsy supply was well-received, stopping though WI by 0.6bp, with dealer takedown tumbling as the cover ratio nudged higher, moving back in line with its recent average.
  • Looking ahead, there isn’t much in the way of tier 1 risk events slated for Asia-Pac hours. Further out, NY hours will be headlined by PPI data, weekly jobless claims readings, 30-Year Tsy supply and Fedspeak from San Francisco Fed President Daly (’24 voter)
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TYU2 trades marginally above late NY levels after the contract pulled back sharply from intraday highs during Wednesday trade, last +0-02 at 119-26. Cash Tsys will be closed until London hours owing to the observance of a Japanese holiday, which will limit activity in futures.

  • To recap, Cash Tsys twist steepened on Wednesday, with the major benchmarks running 6bp richer to 5bp cheaper come the bell, pivoting around 10s. A 0.2ppt miss for each of the major CPI metrics triggered a notable round of bull steepening, before hawkish Fedspeak from Minneapolis Fed President Kashkari (’23 voter) and Chicago Fed President Evens (who retires later this year, ahead of the Chicago Fed rotating on to voting status in ’23) helped to reverse a chunk of the data-driven richening. A reminder that Kashkari & Evans were two of the more dovish voices on the FOMC not so long ago.
  • Also note that WSJ Fed whisperer Timiraos wrote “Wednesday’s inflation report keeps the Fed’s door open to a half-point rate increase in September if subsequent data confirm price pressures are easing. But a 0.75-point rise remains possible after recent reports of accelerating growth in jobs and wages point to significant income gains that could sustain stronger spending and higher prices.”
  • FOMC rate hike premium eased a touch on the day, with Sep FOMC dated OIS now pricing ~63bp of tightening, back from the ~70bp seen and Tuesday, but off Wednesday’s low of ~59bp.
  • 10-Year Tsy supply was well-received, stopping though WI by 0.6bp, with dealer takedown tumbling as the cover ratio nudged higher, moving back in line with its recent average.
  • Looking ahead, there isn’t much in the way of tier 1 risk events slated for Asia-Pac hours. Further out, NY hours will be headlined by PPI data, weekly jobless claims readings, 30-Year Tsy supply and Fedspeak from San Francisco Fed President Daly (’24 voter)