Rates Take a Breather, End Day Little Changed Despite Hot PPI Print

Rates mixed despite encouraging PPI data. Short-dated Treasury yields rose despite a higher-than-expected producer price inflation for the month of August. The 2-year yield rose ~3 bps to 3.79%, while the 10-year yield ended the day flat at 3.404%. A 75bp rate hike in a week’s time remains fully priced in, with a 100bp hike still seemingly on the table if the probabilities implied by Fed Funds futures are to be believed.

Oil price support on multiple fronts. Softer COVID-19 restrictions in Chengdu offered commodity markets some positive news on the back of the IEA’s comment that China will face its largest annual drop in oil demand in more than three decades. Biden’s $80 per-barrel strategic petroleum reserve restock target also supports a floor on prices, and the IEA noted gas-to-oil switching in many countries, which should boost demand. WTI crude futures closed up 2%, approaching $89 per barrel. 

Day ahead. Data on monthly retail sales will headline the day at 8:30 AM ET, which will be followed by releases on initial jobless claims, industrial production, and the Philadelphia Fed manufacturing index.