Decline in Producer Inflation and Re-emergence of Geopolitical Risks Send Rates Lower Once Again

Treasurys rally as producer price inflation decelerates, geopolitical risks move back into focus. Yields fell across a flattening curve today after core PPI came in lower than the forecast. Later in the day, news of a Russian rocket impact in Poland, a NATO member, gave Treasurys an additional lift, sending rates to session lows. The 2-year fell ~5bps to 4.34%, while the 10-year yield fell ~8bps to 3.77%.

PPI comes in under expectations, adding to evidence of slowing inflation. PPI increased 0.2% MoM vs. the 0.4% consensus estimate, and 8.0% YoY vs. the 8.3% estimate. Excluding food and energy, core PPI was unchanged MoM, compared to the 0.3% forecasted increase. PPI measures the average change in prices that domestic producers receive for their output and is an important input into consumer price inflation. After peaking at 11.7% in March on an annual basis, PPI has slowly moderated, with today’s YoY level marking a one-year low in the index. This data release will only serve to galvanize members of the Fed that have pushed to moderate the pace of rate hikes.

Day ahead. Retail sales figures for the month of October will be released at 8:30 AM ET. Hawkish Fed voters John Williams and Christopher Waller will make public comments at 9:50 AM ET and 2:35 PM ET, respectively.