Rates Spark: A U.S. CPI Shocker - Yields Up!

2025-02-13 01:10:00 ET

Summary

• It had been coming. A slow grind, but then a pop – US inflation is suddenly an issue again.
• Chair Powell says it's not, but it is, and Treasuries know it.
• Rate cut ambitions have been hit in consequence. Poor fiscal data for January doesn't help.
• In Europe, the spread between gilt and swap rates to see widening pressure under disappointing growth numbers.

By Padhraic Garvey, CFA | Michiel Tukker | Benjamin Schroeder

US inflation pops, and no rest from the January fiscal deficit data either

A messy Wednesday. CPI inflation has been trending up in recent months, but within zones of tolerance. The January report, however, presented a clear red alert to the Fed. Chair Powell broadly brushed it off as just one number. But in fact, a whole series of inflation readings have been trending up of late. Not in a dramatic post-pandemic way. But still, in a frustrating, stubborn edge away from the holy grail of the sub-2.5% area. The CPI report itself confirmed inflation is running in the area of 3%, continues to edge up, and the month-on-month readings annualise to the 4%+ area. No wonder the entire Treasury curve shifted up in consequence....

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