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Tsy Yields Grinding Higher Ahead CPI

US TSYS SUMMARY
Yields continued to climb higher (10YY 1.3473%, 30YY 1.9915%) on a light data session (US Q2 PREL UNIT LABOR COSTS +1.0% VS Q1 -2.8%; US Q2 PREL NONFARM PRODUCTIVITY +2.3% vs Q1 +4.3%).
  • Rates near midday lows after the bell, on modest volumes (TYU just over 1.1M) as participants focused on Wed's CPI MoM (0.5% est, 0.9% prior); ex food/energy (0.4% est, 0.9% prior), YoY (5.3% est, 5.4% prior); ex food/energy (4.3% est, 4.5% prior).
    • Citi economists say details for inflation metrics like CPI are becoming much more important as they forecast a "solid 0.39% increase in core CPI in July, with some further upside from transitory components such as airfares, but with strength in components like used car prices likely coming to an end."
  • Continued surge in corporate debt issuance in intermediates to long end weighed: $5B Intel 5Pt jumbo, $3.5B HSBC and $1.2B Moddy's lead.
  • Tsys held steady/near lows after $58B 3Y note auction (91282CCT6) stopped through: 0.465% high yield vs. 0.467% WI; 2.54x bid-to-cover off 2.46x 5 auction avg.
    • Indirect take-up remains strong at 55.41% vs. 51.16% 5M avg, while direct bidder take-up climbs to new 1+ year high of 18.43%. Primary dealer take-up slips to 26.17% vs. July's 28.55% still well off 31.10% 5M average.
  • The 2-Yr yield is up 1.4bps at 0.2344%, 5-Yr is up 2.4bps at 0.8195%, 10-Yr is up 1.9bps at 1.3422%, and 30-Yr is up 1.7bps at 1.9869%.

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