Yields Fall on Flattening Curve as PPI Surges

Yields fall across the curve on Powell comments

Despite a record PPI print, yields dramatically fell across a flattening curve as Fed Chair Powell’s House testimony today was able to dissuade investors’ fears that inflation will be more permanent. The 3y UST dropped 4 bps on the day, while the 10y fell by 7bps as the yield curve continues its flattening trend. Equities ended the day mixed with the S&P and DJIA closing slightly higher with the tech-heavy NASDAQ marginally retreating on the day.

Monthly core PPI rises the most on record

U.S. producer prices surged in June, surpassing economists’ expectations. The PPI for final demand increased 7.3% year-over-year, while core-PPI (excludes food and energy) increased 1% month-over-month (the most on record) and was up 5.6% year-over-year.

Powell testifies to the House; Beige Book released

Fed Chair Powell testified today before the House Financial Services Committee and suggested that inflation will “remain elevated in the coming months” but will “moderate.” Powell commented that it would “be a mistake to act prematurely” on inflation fears and added that nearly all forecasts see high prices not lasting indefinitely. During Powell’s testimony, the Fed’s Beige Book was released and revealed that supply-side disruptions have become more widespread, which include labor and material shortages, delivery delays, and low inventories. Further, over 75% of manufacturing respondents reported expectations of paying higher prices over the next six months and expect to receive higher prices for their own goods.