Rates Continue Upward Trend

2 and 10-year yields rise to cap a volatile month. February’s Treasury sell-off continued today, 2-year and 10-year yields rising ~4bps and ~1bp, respectively. The 2-year yield closed the month just below its multi-year high at 4.82%, cementing a 60+ bp rise in February. The 10-year yield followed a similar story, rising 40+ bps to 3.92% by the month’s end. The moves came after data revealed a robust economy and inflation, including high nonfarm payrolls, CPI, PPI, PCE, and low unemployment.

European inflation surprises to the upside. Investors made bets on a 4% terminal rate today after French and Spanish inflation came in above expectations. French consumer prices increased 7.2% YoY, a record, and Spanish prices increased 6.1%. Estimates were for 7% inflation in France and a decline in Spain. These results further solidify a 50bp hike at the ECB’s March meeting and support hawkish sentiment for the remainder of the year. Markets expect rates to remain high in Europe after peaking, with ECB Council Member Vujcic saying “It will take time to return to what we’ve seen…my main worry is not where inflation is going to be, but how persistent it will be.”

Day ahead. Manufacturing PMI, expected to decrease from 55.2 to 54.5, will highlight a data-heavy session at 10 AM. Mortgage rate and application data will lead the day at 7 AM. There is no Fed commentary on the schedule until Thursday afternoon.