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Tsys Hold Range After Strong 10Y Sale


Tsys trading firmer -- near middle session range by the bell. Tsys scaled off highs after strong $35B 10Y Tsy note auction stopped 2.9bp through w/ 3.613% high yield (3.642%WI going into the auction cutoff). Yield curves flatter, but still off Mon's 40 year inverted lows (2s10s currently -1.022 at -80.528 vs. -84.734 late Monday).

  • Tsys and EGBs traded weaker in the first half amid ongoing central bank telegraphing further (and larger if necessary) rate hikes needed to tamp down inflation.
  • NY Fed Pres Williams economic outlook at WSJ live event cited a "lot of uncertainty around inflation" specifically services sector prices that may necessitate more hikes, adding "peak rate of 5-5.25% .. still a reasonable view."
  • Earlier ECB commentary highlighted by MNI's event with Klaas Knot who said a 50bp hike was possible in May (as well as March) pending inflation developments. Kazaks called for "significantly" restrictive rates while de Guindos wouldn't rule out further hikes past March.
  • Fed funds implied hike for Mar'23 at 26.1bp (+.7), May'23 cumulative 44.9bp to 5.031%, Jun'23 55.5bp (+1.2) to 5.137%, terminal at 5.145% in Aug'23.
  • Tsy futures rally after strong $35B 10Y note auction (91282CGM7) stops through w/ 3.613% high yield vs. 3.642% WI; 2.66x bid-to-cover vs. 2.53x prior. Indirect take-up surges to new high of 79.45% vs. 67.02% prior; direct bidder take-up 15.19% from 17.92% prior; new low primary dealer take-up 5.36% vs. 15.06%.

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