By Ven Ram, Bloomberg Markets live strateigst and commentator
Treasuries are holding their composure ahead of today’s U.S. CPI data, which is expected to show a fifth month of acceleration.
How the inflation landscape has so dramatically changed from a year ago is borne out from the Bloomberg economists’ survey, where not a single forecast is below 7%. The firm conviction stems perhaps from mild prints one year earlier. You would assume the outlook is baked into the markets by now – meaning any downside surprise will have a greater impact on immediate price action than a higher-than-forecast number.
For instance, a headline CPI number even slightly below 7% and an on-month core print below 0.5% would make the markets question its conviction on the need for a 50-basis point increase in March. While a print in line with the median will keep the speculative embers alive, the Fed will have the benefit of seeing the numbers for February before making a final call
Unless the numbers are shockingly soft, Treasury yields are likely to continue their trek higher — perhaps not immediately, though, given Wednesday’s auction demand — with the 10-year rate likely to approach 2.0904%. A number that is in line with the median forecast is likely to also keep front- and intermediate yields on the boil. In November, MLIV posited that front-end bonds represent a ticking time bomb and forecast the two-year yield to reach 1.75%, and the securities are well on there way to their intended destination.
