Yields Fall As CPI Moderates

TYH3 deals at 115-08, +0-00+, little changed from levels seen in late NY dealing.

• Cash Tsys were 7-12 bps richer at the bell on Thursday, with 5s leading the bid.
• Tsys were volatile as the Dec CPI figures were digested, initially trading lower before the move quickly reversed, then see-sawing higher through the remainder of the session, going out a little shy of best levels.
• Headline CPI hit its lowest level since Oct 2021, core inflation had its smallest advance in a year, as both figures printed in line with expectations.
• Fedspeak from Philadelphia Fed President Harker, a voter this year, noted quarter-percentage point rate hikes would be most appropriate going forward. Richmond Fed President Barkin also showed a degree of moderation, remarking inflation has been slowing and the Fed doesn't need to raise rates as aggressively.
• St Louis President Bullard said he continued to favor front-loading policy to get rates above 5% as soon as possible.
• Tsys extended higher after the latest 30-Year auction, which stopped through by ~2bp, meanwhile a strong cover ratio and above average indirect take up was observed as primary dealer take up fell.
• Fed dated OIS is now pricing ~27bp of tightening for the Feb ’23 meeting, falling ~4bp yesterday as the market digested CPI data. Terminal rate pricing also ticked lower, now sitting at ~4.90%.
• China trade data headlines the Asia-Pac docket. Further out UofMich Sentiment provides the highlight in NY data. There is Fedspeak from Minneapolis Fed President Kashkari and Philadelphia Fed President Harker.