Yields fall but next week’s CPI will be a challenge

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Yields drop today

US 10-year yields are down 6.6 bps to 1.56% today to the lows of the day and the week. A fractionally lower dip would be the lowest close since April 22.

Clearly the market is growing less worried about a taper and runaway inflation, but the mood of this market can shift quickly on economic data.

On Thursday of next week, the CPI report is due and expected to show prices up 0.4% in the month and 4.7% y/y. Estimates range from 4.2% to 4.9%. A number with a five-handle would surely spook the market.

That said, there’s more chatter in the market about various core and trimmed mean measure of underlying inflation and the drop in yields reflects increased confidence that inflation isn’t spiraling. There will be an ebb and flow in that trade and I suspect the tell may end up being the technicals.

US 10s have ranged between 1.45% and 1.80% since March. In the shorter term, 1.53% has been the range bottom but we’re a long ways away from either side of the extremes.

Other events on the US calendar next week:

Monday:

  • Consumer credit

Tuesday:

  • Trade balance
  • JOLTS

Wednesday:

  • wholesale inventories

Thursday:

  • CPI
  • initial jobless claims

Friday:

  • UMich prelim June sentiment

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