CPI and 30year auction
August 10, 2023
–CPI today expected 3.2 to 3.3% yoy from 3.0, with Core expected 4.7% from 4.8 last. Jobless Claims 230k. 30y auction.
–Curve slightly more inverted yesterday with 2s +4.2 bps to 4.80 and tens -1.4 to 4.01. Ten year auction result 3.999%.
–For the past 15 sessions FFX3 has settled 9456 to 59 or 5.444 to 5.41%, vs current Fed Effective of 5.33%. The November FF contract encompasses the Sept 20 and Nov 1 FOMCs, and is not quite at the 50/50 mark in forecasting another 25 bps hike. The market remains fairly certain that the Fed is done or has just one more hike. The more important question is how long FF can be held high before the ease cycle begins. Actually though, the dominant issue might become what happens with long end rates. Although there has been a small bond rally in the past few days, the trend favors higher yields. Inflation base effects become more of a headwind going forward, and energy is becoming more expensive. A general tightening of financial conditions (lower stocks, stronger USD, weak bank loan growth, a waning fiscal impulse) might translate into higher, not lower, bond yields. Inflation data will be important. If inflation data are slightly lower than expected but yields end higher, it will be a bearish signal.
