Oil Price Decline Drives Lower Treasury Yields, Inflation Expectations

Treasury yields and inflation breakevens fall alongside oil prices. News that Israel Prime Minister Netanyahu may avoid deliberate strikes against Iran’s crude oil infrastructure sent oil prices tumbling, with Brent and WTI crude down over 3.50% today. 2-year to 10-year inflation breakevens fell 5-7bps as a result, now between 2.02%-2.36% while the long end of the yield curve fell 7-9bps. However, the (policy-sensitive) short end of the yield curve was little changed due to recent Fed commentary about the need for cautious rate cuts.

Consumers are increasingly worried about debt. September’s NY Fed Survey of Consumer Expectations showed that consumers are less confident about managing their debt despite flat inflation expectations of 3% (over the next 12 months). Expectations of missing a debt payment over the next three months climbed for a fourth-straight month to 14.2%, the highest level since April 2020. Perceptions about current household financial conditions also deteriorated, with more consumers reporting that they are worse off than a year ago.

Canada CPI tumbles to 1.6%. Inflation data released this morning showed that Canada’s consumer price index (CPI) was lower than expected in September. Headline CPI declined to 1.6% from 2.0% previously, the lowest level since February 2021. Futures markets have a 50bp rate cut priced in as 50% likely at Canada’s October 23rd policy meeting.