Inflation Lifts 10-Year Note Closer to 3%
Prior Week Summary
The economic data calendar was busy last week led by a stronger than anticipated CPI report. The Labor Department reported that consumer prices rose 0.5% in January, besting the consensus expectation for a gain of 0.3%. Over the course of the year, headline prices increased 2.1%. Excluding the more volatile food and energy inputs, prices rose 1.8%. The report detailed a sharp rise in apparel prices, which increased 1.7%, as well as a 0.3% increase in rents and a 1.3% advance in car insurance premiums. In a separate report from the Labor Department, wholesale prices were said to have gained 0.4%, bringing the year-over-year increase to 2.7% from a year earlier. The 2.5% increase in core PPI is the largest gain in the last four years and supports the market’s preferred narrative – that the Fed will need to continue to raise rates as the economy is starting to generate consistent pricing pressures. On the other side of the coin, retail sales growth underwhelmed market expectations, falling 0.3% in January as auto sales fell 1.3% and a 2.4% decline in building materials weighed on the composite.
The gains in the inflation readings brought the 10-year Treasury note ever closer to the 3% barrier, trading as high as 2.94% on Thursday.
The Look Forward
The main event for this week is the significant amount of Treasury supply coming to the market to fund our increasing deficits. The government will look to sell $258 billion worth of debt this week, the greatest amount ever sold in a week. The laundry list includes $51b on 3-month bills, $45b of 6-month bills, $35b 5-year notes and more! In addition to the standing economic data releases, trading levels are likely to be driven by how much concession the market will need to price in on these auctions to clear the market.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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