The CPI release led to unexpected fixed income activityđ
While the magnitude of the beat was not particularly shocking, but the wave of fixed income and risk short-squeeze this week had setup relatively lop-sided positioning heading into the number. Although equity markets held strong for much of the morning session, US treasuries clearly traded on their backfoot all-day in preparation for the 30yr auction.
Bond markets already went into the 1pm supply with a massive 13bp concession post-CPI, but a terrible auction crushed whatever risk-buying support we had left in the day. The 30yr issue tailed +3.7bp for the largest tail in 2 years, with a feeble 2.35x bid-to-cover (weakest since march) and user-demand dumping to just 81.8% for the weakest showing since Dec 2021. Bonds sold off further into the close as the yield-curve spiked between 9-16bp higher across the curve in a bear steepening manner, with the risk-off sentiment spilling over to FX (DXY +0.7%) and equities (SPX -1%).
