China CPI Spurs Rates Rally

Weak data overseas pushes rates lower. Swap rates and Treasury yields fell across the curve today after China announced weak CPI and PPI levels, the former of which came in flat for June, the lowest YoY level seen since February 2021. The 2-year UST yield fell 9bps to 4.86%, marking a ~26bp fall from last week’s intraday peak of 5.12%. The 10-year yield fell 7bps to 3.99%. Elsewhere, equities rallied on the day, the DJIA climbing 0.62% while the S&P 500 and NASDAQ Composite rose ~0.20%. 

Multiple Fed officials make hawkish statements. Three Fed members expressed their support for additional 2023 rate hikes today, including Vice Chair for Supervision Michael Barr, who stated that the central bank has “a bit of work to do” to calm inflation. Cleveland Fed President Loretta Mester reiterated the sentiment, voicing that the Fed Funds rate will have to “move up somewhat further.” San Francisco Fed President Mary Daly was more specific in her views, saying “We’re likely to need a couple more rate hikes over the course of this year to really bring inflation back into a path that’s along a sustainable 2% path.” Futures currently suggest a ~90% probability of a 25bp hike when the FOMC meets in two weeks, but less than a 50% chance of any hikes thereafter.

Day ahead. Economic optimism data will highlight an otherwise quiet session, all focus remaining on Wednesday’s CPI print. Hawkish Fed member James Bullard will make public comments at 9 AM.