Beware Of Trading Treasuries On Headline Excitement From CPI
By Ven Ram, Bloomberg reporter and macro commentator
Warning: Headline writers may drive themselves into a tizzy describing inflation if Wednesday’s data prints on the higher side. That will, however, have only a mild side-effect: nominal yields may grind higher, but escape velocity will still be elusive.
It’s in the fitness of things that 10-year Treasury yields have inched up since July’s better-than-forecast non-farm payrolls data, though the increase has been oh-so-measured. With every single forecast in Bloomberg’s survey estimating the CPI print to come in above 5%, positioning on the day is perhaps overwhelmingly bearish on rates — meaning a softer-than-expected print may actually elicit a greater reaction.
Whatever the reaction, keep in mind that the Fed has pretty much embraced the idea that substantial further progress has been made on inflation, so trading rates isn’t just about price pressures anymore. In any case, the Fed does expect inflation to be elevated this year, so it’s best not to get hung up about current price pressures. Rather, it’s the future of inflation that the monetary authority will be concerned about. On that front, the markets aren’t telegraphing concern just yet that inflation will spiral out of control beyond the intermediate term, as can be seen in the negative spread between 10- and five-year breakeven rates.
Talking of substantial further progress, employment is more the focus, with Chicago Fed chief Charles Evans saying overnight that he would like to see a few more jobs reports before making a decision on taper. His statement just goes to show that the doves on the FOMC are yet to be convinced, meaning there is no incentive for rates to price in an accelerated timetable on tightening just yet.
Wed, 08/11/2021 – 07:46