Daily Market Color

Rates Continue to Decline Ahead of Inflation Data

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.

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