Rates Soar on Elevated CPI

CPI strikes again. September’s CPI followed PPI and came in well above forecasts, which saw rates bear steepen and rise 8-16bps across the curve. The move was a significant reversal of the past few sessions, as the 2y and 10y UST yields came into the day ~8bps and ~25bps lower on the week, respectively. The 2y now sits at 5.07%, while the 10y closed at 4.70%.

Consumer price inflation continues at brisk pace in September. CPI advanced in September, and despite some progress on headline MoM inflation and YoY core inflation (slowest increase since 2021), CPI remained generally elevated and communicated continued inflation. Housing inflation was the largest contributor to the monthly headline increase, closely followed by higher energy costs. This release is just another in a string of data that illustrates the continued strength of the US economy and the inflationary pressures it faces. Yields jumped on the data, and futures pushed the odds of another quarter point Fed hike to ~40%, compared to ~30% yesterday.

USD/JPY jumps. CPI fueled the “higher for longer” fire yet again, which saw the USD continue its recent climb. The USD had its best day in 5+ weeks, which pushed the yen closer to 150 per dollar, a significant threshold. Market participants believe that JPY depreciation past 150 to the dollar could force the central bank to intervene, where a change to current yield curve control policy could prove volatile.