Producer Price Inflation Falls Short, Sends Rates Tumbling Again

Rates continue sharp rally post-PPI. Swap rates and Treasury yields rallied significantly today, continuing yesterday’s move after a weak CPI print ignited the move. PPI was the force behind today’s price action, pushing the 2-year UST yield down 12bps to 4.63% and cementing a ~50bp decline over the past week. The 10-year yield fell 9bps to 3.76%. The announcement of Fed President Bullard’s resignation also contributed to the rally, given his outspoken support for aggressive rate hikes.

PPI follows CPI with weak output. The combination of today’s weak PPI and yesterday’s CPI have launched the “disinflation” narrative into full force, as PPI came in at its lowest level since 2020 today. PPI was weak across the board, with both headline and core MoM figures coming in at 0.1% despite forecasts of 0.2%, while last month’s levels were revised down by 0.1%. The headline and core YoY levels were below their forecasts of 0.4% and 2.6% at 0.1% and 2.4%, respectively.

Day ahead. Michigan consumer sentiment will be released at 10 AM following import and export figures earlier in the morning. Oil data will round out the week at 1 PM.