Both readings fell in line with expectations of economists polled by Reuters. Richmond Fed President Thomas Barkin said on Tuesday the annual increase was also in line with Fed expectations.
"It's about as expected. Inflation is normalizing but it's
coming down slowly. I just think there's gonna be a lot more
inertia, a lot more persistence to inflation than maybe we'd all
want," Barkin said in an interview with Bloomberg TV following
the release of the report.
However, after a choppy start to the day's session,
benchmark 10-year note yields rose to 3.726%, their
highest since Jan. 3, reflecting market expectations that the
Fed keeps interest rates higher for longer.
Two-year yields rose to 4.583%, their highest
since early November. The two-year is particularly sensitive to
rate movement expectations.
“My quick take on this is that the number in my view is
higher than what the market expected," said Tom di Galoma,
managing director and co-head of rates trading at BTIG.
"Disinflation is kind of changed here," he said. "This gives
some ammunition to the Fed to basically come out with more
hawkish rhetoric."
The yield curve between two-year and 10-year notes inverted further to minus 86 basis points, after
inverting as far as minus 88 basis points last week.
Futures rose as investors priced in the Fed's target rate to
peak at 5.243% in July. By December, the market sees it at
5.008%, more than 50 basis points higher than before last
month's strong jobs data fueled fears of further Fed tightening.
“The strength of core inflation suggests that the Fed has a
lot more work to do to bring inflation back to 2%," said Maria
Vassalou, co-chief investment officer of multi-asset solutions
at Goldman Sachs Asset Management.
Following Tuesday's CPI report, the next major data point
will be the release of January retail sales volume. This is
expected to show retail sales rebounding 1.6% in January after
falling 1.1% in December, according to a Reuters survey of
economists. On Feb. 24, the Commerce Department releases personal
consumption expenditure and income data.
February 14 Tuesday 10:16AM New York / 1516 GMT
Price Current Net
Yield % Change
(bps)
Three-month bills 4.67 4.792 0.014
Six-month bills 4.8325 5.0223 -0.003
Two-year note 99-38/256 4.5836 0.050
Three-year note 99-62/256 4.2718 0.051
Five-year note 97-234/256 3.9673 0.041
Seven-year note 97-208/256 3.8613 0.023
10-year note 98-32/256 3.7263 0.007
20-year bond 101-80/256 3.9037 -0.018
30-year bond 97-116/256 3.7674 -0.025
DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap spread 31.00 2.25
U.S. 3-year dollar swap spread 18.75 1.75
U.S. 5-year dollar swap spread 5.75 0.50
U.S. 10-year dollar swap spread -1.25 0.50
U.S. 30-year dollar swap spread -38.50 0.00
(Reporting by Matt Tracy, Additional reporting by Herb Lash
Editing by Nick Zieminski)
