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Unexpected Risk Appetite Return After Jump in CPI

US TSYS
Volatile day for rates and equity markets, Tsys weaker again after bonds actually traded higher in late trade -- an unexpected rally in both rates AND equities (SPX tapped 3697.25 high vs. 3503.25 post-data low) after this morning's bounce in CPI inflation measure.
  • Largely ignoring weekly claims (+9K to 228K; continuing claims +0.003M to 1.368M) Tsys gapped lower following jump in CPI (8.2%, core 6.6%), yield curve bear flattening as prospect of 75bp hike in Nov a lock weighed heavily on the front end.
  • Contributing to the rally that coincided w/BOE buy-op, large 10Y Block buy: +14,278 TYZ2 110-21, large buy through 110-16.5 post-time offer at 0957:35ET, 110-24 last (--23.5); appr DV01 $940k.
  • Otherwise there did not appear to be any specific headline driver for the surge in risk appetite after the morning data - but more a confluence of acceptable triggers for risk takers: chatter from some traders that CPI seen as peak inflation.
  • Another desk pointed out the NY Fed Underlying Inflation Gauge (UIG) was not as stark as the CPI: The UIG "full data set" measure for September is currently estimated at 4.4%, a 0.1 percentage point decrease from the current estimate of the previous month. The "prices-only" measure for September is currently estimated at 6.0%, unchanged from the current estimate for the previous month.

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