Rates Spark: Bonds Get Some Bullish Pills

2025-06-12 04:30:00 ET

By Michiel Tukker and Padhraic Garvey, CFA

US CPI and 10yr auction are good enough to prompt some follow-through

US consumer price inflation came in benign for May . We had suspected as much, but the outcome was even more benign than we had expected. Two 0.1%’s on the month were super. Almost too low, in fact. Annualise those and there is no inflation. But we can’t do that, as tariffs will push consumer prices back up again, well up, all in the coming months. Tough one for the bond market to interpret. The reaction to this report was about right - yields gapped lower. But we can’t, unfortunately, get too carried away with such “positivity”. We will have self-inflicted inflation issues in coming months (it would be remarkable if we didn’t). And passage of the tax bill adds another layer of bond negativity to the equation. But on the day, the positivity continued, as the 10yr auction was decent. There was a large negative tail (simplistically came through secondary), a low dealer takedown and decent indirect and direct bids....

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