Inflation - USD
With all the card stacked against it today, BEs continued falling into the bear steepening abyss today with little aid from month-end index demand.
BEs remained under bear steepening pressure, extending their recent rout as rebalancing flows continue to pressure TIPS.
Risk-off sentiment once again hits BEs with valuations now looking attractive at the front-end to some.
Today’s decent $18bn 5y TIPS re-opening managed to improve the performance of the 5y BEs while other tenors softened up again.
A few soothing words from Powell helped lift an early slump in risk sentiment. But this wasn’t enough for BEs ahead of 5y supply tomorrow.
BEs reversed lower along with the broader risk tone after further reassessment of the Fed a day after the FOMC decision.
The Fed managed to thread the needle with today’s expected 75bps hike. BEs largely move higher with other asset classes.
BEs continued to contract with the front-end falling through the floor as Fed hike expectations continued adjusting.
Risk off, weak TIPS and the approach of supply outweighed any boost to euro inflation from higher gas prices, traders said today.
Today’s surprisingly strong May CPI release – hitting a new 40y high – sent BEs on a bull-flattening frenzy as peak inflation remains nebulous.