PPI Does Not Surprise

Strong 30-year Treasury auction pulls rates down once again. Swap rates and Treasury yields fell significantly off the board after PPI figures failed to surprise to the upside and today’s anticipated 30-year Treasury auction went off without a hitch. 10-year yields would ultimately decline 4 bps to 1.70% while the short-end also rallied, 2-year rates pulling back from post-pandemic highs.

Producer prices rise significantly, with pressure broadening. Although the December Producer Price Index (PPI) came in just below analyst estimates, prices still rose 9.7% year-over-year, the second-highest print on record. November’s print was revised upward to 9.8%. Both food and energy prices were tempered in December, but core PPI, which excludes both food and energy, printed higher than estimates increasing 8.3% year-over-year (8.0% est.).

Vice Chair nominee Brainard says inflation is top priority. In her first hearing to be named second in command at the Fed, current Fed Governor Brainard commented that quelling inflation is the top bank’s “most important task” and that FOMC has “projected several hikes over the course of the year.” Even with the two-day rally in rates, the market is currently expecting 4 hikes in 2022. Overall, the hearing went without a hitch, and looks like her confirmation to Vice Chair will be imminent.