CPI might be lower, but inflation expectations edging up
October 10, 2024
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–CPI today expected 0.1 with Core 0.2. On yoy basis, 2.3 expected from 2.5 last with Core 3.2, same as last.
I would note that the ten-yr breakeven (treasury – tip) rose to 229.5. Exactly one month ago on 10-Sept it hit the cycle low at 202.8. Those that believe the Fed made an error with the 50 bp cut can point to evidence of increased inflation expectations.
FOMC minutes, only 1 dissenter, but some favored only 25:
“A few participants also added that a 25 basis point move could signal a more predictable path of policy normalization. A few participants remarked that the overall path of policy normalization, rather than the specific amount of initial easing at this meeting, would be more important in determining the degree of policy restriction.”
–Yields rose yesterday with fives the weakest, +4 bps to 3.904%. 2s, 10s and 30s all have a 4 handle; 30s were up 1.4 bps at futures settle at 4.065% in front of today’s auction. However, USZ continued to press lower after the settle of 120-25, printing as low as 120-14 early this morning, and now at 120-19. Implied vol was firmer across the board on demand for TY puts. For example, new buyer of about 30k each TYZ4 106p for 3 and 105p for 2 (settled 4 and 3).
–Vol bid isn’t surprising on weaker prices and uncertainty related to inflation and Milton. October SOFR midcurves expire Friday. 0QV4 9656.25^ settled 15.25 ref 9655 in SFRZ5. Hefty premium for a 2 day straddle. TYX4 atm 112.25^ settled 1’07 yesterday with 16 days left. That’s 16.5 to 17 bps.
