Daily Market Color

Rates Continue to Decline Ahead of Inflation Data

Jordan Wank

Bonds and equities rally ahead of tomorrow’s CPI. Swap rates and Treasury yields decreased on the day, the 2-year yield falling ~3bps to 4.22% while the 10-year yield declined to ~8bps to 3.54%. With today’s move, the 10-year yield has decreased ~34bps YTD, illustrating the market’s strong anticipation of a soft CPI print tomorrow. Equities again benefitted from the decline in rates, the S&P 500 and NASDAQ rising 1.28% and 1.76%, respectively.

CPI Preview. Headline CPI is expected to decline to 6.5% vs. 7.1% in November. Notably, forecasts are also calling for a 0.1% month-over-month decline in consumer prices. The Fed’s commitment to data dependence raises the stakes for this CPI print, which comes only 3 weeks before the Fed’s next rate decision. A soft figure will confirm the price action seen since the start of the year, while a surprise to the upside could trigger a substantial rise in both swap rates and Treasury yields.  

Day ahead. CPI for the month of December will be released at 8:30 AM ET. Initial jobless claims for the week that ended January 7th will also be released at 8:30.

Jordan Wank

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