Long-Term Rates Rise 10bps After Another Hot Inflation Print

Swap rates soar after inflation data reveals elevated levels. Today’s Producer Price Index data pushed swap rates 6-10bps higher by market close. Rates are now 30-55bps higher year-to-date, with the largest gains coming in the belly of the curve. Initial market reaction to the morning data was mixed after retail sales were lower than expected (+0.6%) in February, but the elevated inflation data ultimately overwhelmed and led to the rate rise. Equities dropped as the S&P 500, Dow, and NASDAQ fell 0.29% – 0.35%.

PPI was higher than expected in February. Inflation data continues to show robust US price pressures,as today’sproducerprice print was higher than expected across all measures. Core PPI rose 0.3% MoM and 2.0% YoY versus estimates of 0.2% and 1.9%, respectively. Headline levels were also elevated, as the +0.6% MoM and +1.6% YoY jumps were the largest since last summer. Goods prices rose by the most in six months, largely driven by a 4.4% increase in energy costs and a 1.0% climb in food costs. The PPI release continued a multi-month stretch of generally elevated inflation data, which has greatly contributed to a delay in market expectations for Fed rate cuts.

Bank of Greece Chairman Yannis Stournaras says that the ECB must cut rates “soon.” ECB Governing Council member Stournaras said that the central bank needs “two rate cuts before the summer break, and four moves throughout the year.” To do so, the ECB must cut rates “soon so that our monetary policy does not become too restrictive.” Stournaras’ comments follow the ECB’s decision to hold rates steady last week and ECB President Lagarde’s statement that the central bank needs more evidence to ease policy. June’s wage data has been pinpointed by many (including Lagarde) as a crucial input, though Stournaras argued that “We should not exaggerate the risk of a wage-price-spiral… nominal wage growth is moderating, and profits are absorbing part of the pay increases.”