CPI day
September 13, 2023
–Curve flatter yesterday with 2yr note up 1.6 bps to 5.002 and 10y down 2 bps to 4.262. On the SOFR curve reds -3, greens -1.25 but blues UP 0.875 and golds +2.75.
–Big release of the day is CPI, expected to show yoy headline increase to 3.6% from 3.2 last. Core expected to drop from 4.7 last to 4.3%. FFX3 settled 9456.5, still indicating around 50/50 odds of a 25 bp hike at the Nov 1 FOMC.
–30y auction today as well. USZ3 currently on the lows of the past six sessions, trading 118-28 this morning vs 119-14 settle on Tuesday.
–Yesterday a buyer of 40k SFRM4 9600/9700cs for 9.0/9.25, settled 9 vs 9492.5. Previously there had been large buying of the same strike call spread in March at around the same premium (9 to 13), though that cs now settled at 4.0 vs 9468 (both strikes have over 260k open interest). This player typically comes in before large data points.
–With midcurve September options expiring Friday, 0QU3 9525^ settled 15.0 with SFRU4 almost exactly at strike at 9525.5. Wide breakeven 9540 to 9510 for just three days, though yesterday’s settle in U4 is a new contract low.
–Mood of the market is that rate hikes are probably done, but there is concern that the Fed may feel compelled to raise if inflation perks up again. Therefore the curve is under pressure, but long end yields are weighed by supply.
–Escalation in Ukraine/Russia with an attack on Sevastopol port just in front of Putin/Kim Jong Un meeting. Wheat responded with a small uptick to near $6 (W Z3) but the contract had been 7.50 in mid-August.
From the Daily Mail a couple of hours ago…
- Blistering strikes saw up to seven huge explosions hit a naval port in Sevastopol
- The black sea city is strategically important to Russia, which annexed Crimea from Ukraine in 2014. Kyiv has stated its intention to liberate the peninsula
