CPI Looms Large

Rates stay near neutral ahead of CPI tomorrow. Swap rates and Treasury yields rose slightly on the day, the 2-year yield rising ~2bps to 4.02% while the 10-year yield rose 1bp to 3.52%. The move came ahead of tomorrow’s CPI, which has mixed forecasts; the headline MoM level is expected to rise from 0.1% to 0.4% while both core YoY and core MoM figures are expected to decrease. Inflation remains under the Fed’s microscope, with Philip Jefferson saying that “inflation will start to come down and the economy will have the opportunity to expand,” while John Williams cautioned that the effect of rate hikes on inflation will take time to come to fruition.       

Debt ceiling developments. President Biden met with congressional leaders at 4:00 PM EST to discuss possible solutions to the escalating debt-ceiling crisis. Solutions differ across party lines – the House GOP plans to couple an increase in the debt-limit with proposed spending cuts, while Democratic proposals include a “clean” extension to the ceiling deadline date into next year, a short-term extension, and relying on the 14th amendment, among other solutions. Commenting on the potential for a solution, former Biden administration economic adviser Daleep Singh said yesterday, “I’m afraid market stress is still what’s needed to create cover for facing compromise and that’s why, perversely, market complacency is tough to beat.” Overall, the market impact of debt-cap concerns has remained relatively benign, though some reports indicate that along with CDS spread widening, T-Bill markets have also started to factor in the risks of a U.S. default. 

Day ahead. Tomorrow’s CPI data at 8:30 will highlight the session. Mortgage figures will lead the day at 7 AM, while Treasury bill and note auctions will be held in the afternoon.