US Dollar: How is hot CPI driving yields and Fed bets higher? – Rabobank

US Treasury yields have risen sharply and talk of a possible 50 bps Federal Reserve hike has resurfaced after US CPI exceeded expectations, according to Rabobank’s RaboResearch Global Economics & Markets team. Its report attributes the surge in US 2-year and 10-year yields to renewed inflation pressures across groceries, housing and services, noting that investors had only just rushed back into Treasuries.

Does hot CPI put an aggressive Fed hike back in play?

"Yesterday’s US CPI print came in hotter than expected at 0.4% m-o-m headline vs. a consensus of 0.3% and 0.3% core vs. a 0.2% market view. To put it in the words of the usually dovish Fed voter Goolsbee, “It’s another distressing report, borderline disturbing. We’ve been hoping to get progress.” Instead, we saw an acceleration in grocery and food inflation, persistent housing/shelter price pressure, and a delayed pass-through from earlier energy shocks feeding into medical care, household furnishings, and other daily expenses."

"The reaction in US 2-year yields was dramatic - they jumped 19bps while 10-year yields rose 14bps to briefly go back above 5% again; today, we have a Bloomberg story talking about the possibility ofa 50bps hikefrom the Fed!"

"Of course, that US yield spike came just after everyone rushed back into Treasuries after the AI and bullish oil trades hit an air pocket with last week’s US election on the view that the former is likely to be slowed down and that we are closer to peace than war in the Middle East on the back of the recent Democrat Blue Tsunami.Now imagine if either of those were not the case."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)