As feared, today’s CPI data has proven to be the most capable market mover of the week, by a wide margin. Unfortunately, that volatility is playing out in an unfriendly direction due to the much hotter inflation reading. 10yr yields are well over the highs of the week, and not too far from the multi-year highs seen in early May. 2yr yields are even worse off (due to the data’s implication for the Fed rate hike outlook). MBS started off with only moderate losses, but have now completely tanked along with the rest of the entire market (neither stocks nor bonds are very happy).
In the bigger picture, this is indeed a troubling development. Traders and economists were both expecting, or at least hoping for inflation to continue showing signs of cooling. While the CORE level reading is flat month-over-month, headline inflation surged back to 1.0% month-over-month–it’s second highest monthly level since the pandemic, and the 3rd highest since the 1980s! Fed Funds Futures reacted with their sharpest sell-off in more than a month.
As far as the long-term trend goes, yields are pushing the upper boundary of both that trading range as well as the recent trend toward higher yields that began on May 31st.
We are currently over 3.15, but can watch that as the 3pm close, and then continue watching 3.20% early next week (and hopefully not today) for evidence of support.