PPI Blowout Sends Yields Climbing

Yields higher after PPI blows past estimates. UST yields jumped 5-6 bps higher in the immediate aftermath of today’s PPI data, which highlighted significant inflationary pressures in July. Despite a brief reversal, yields generally trended upwards for the remainder of the day as traders eased rate cut bets. Yields ultimately closed 4-6 bps higher across the curve, with the 2-year yield at 3.73% and the 10-year yield at 4.29%. Meanwhile, the multi-day rally in equities came to a halt.

PPI data comes in hot. Headline and core PPI rose 0.9% MoM in July, well above 0.2% estimates and no change in June. On an annual basis, headline and core PPI landed at 3.3% and 3.7%, versus estimates of 2.5% and 3.0%, respectively. Services inflation jumped 1.1% MoM, the highest in three years, driven by machinery and equipment wholesale, portfolio management fees, and airline services costs. Today’s data reignited tariff-driven inflation concerns after Tuesday’s mild CPI release, and many believe firm margins will start to compress, forcing them to pass along costs to consumers. The data also added some complexity to the Fed’s September meeting decision, though a 25 bp rate cut is still priced in as 93% likely.

St. Louis Fed President Alberto Musalem says it is too early to decide on September rate cut. In a CNBC interview this morning, Alberto Musalem (FOMC voter) expressed that it is too soon to decide what policy he will support at the September meeting. When asked directly about the feasibility of a 50 bp reduction, which Treasury Secretary Bessent voiced support for, Musalem argued that it is not supported by the economy’s current state or outlook. He went on to explain that the data is giving some signs of persistent inflation and a weakening labor market, saying, “I’m weighing both things. When we see tension between our two mandated goals, we need to follow a balanced report.”