Weaker than expected CPI provides no comfort for bonds
March 13, 2025
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–CPI was a little better than expected with monthly readings of 0.2 both headline and Core. Headline yoy was 2.8 vs expected 3.0 and 3.1 on Core vs 3.2. PPI today.
–However, bonds traded weaker on the day, partially due to continued supply. Ten year auction went well with a yield of 4.31%. Overall yields ended higher with tens up 2.4 bps and 30s up 2.6 at 4.626%. 30 year auction size today is $22b.
–Front end was weakest part of the market with 2y +5.8 to 3.995%. On the SOFR strip SFRZ5, H6 and M6 were all -7 at 9632, 9640.5 and 9644.0. With just a week to go until FOMC, March is priced for steady policy. while the May 7 meeting is priced at odds of about 36% for a 25 bp cut (FFK5 settled 9573). They’re going to cut at the May meeting in my opinion.
–Stocks a bit lower as of this writing as Schumer closed the door on a continuing resolution to keep the gov’t open. Budget deficit released yesterday was $307 billion for month of February and record $1.15 trillion for the first 5 months of the fiscal year. A $300 billion/month deficit at 4% adds $1 billion per month to the interest rate bill. April Gold is 2956 this morning, up 9.2 and threatening last month’s highs. Retailers continue to trade poorly, after making new highs in Feb, WMT is down 19%, COST is down 14% and TGT, which has been in a prolonged slide is 24% off the high made in Feb.
–Implied vol hammered in rate futures as CPI provided little drama. As an example, TYJ 111^ settled 1’12 Tuesday, with TYM 111^ at 2’44. Yesterday: TYJ 110.75^ 0’59 and TYM 110.5^ 2’33.
