Rates Spark: Rates Having A Peek To The Downside

2025-01-17 00:20:00 ET

Summary

• The market remains in a mood to test the downside for yields (10yr now at sub-4.6%), sparked by the run of lower-than-expected core PPI and CPI data, and sustained in a sense by weaker-than-expected retail sales.
• We’re still structurally bearish for 2025, but this market wants to have a bit of a dip lower in yield to see how the water feels there, and will keep dipping until it feels wrong.
• 10y Bund yields were marginally lower on the day, thus not fully reflecting the bearish dynamic in the US and resulting in a narrowing of the 10y UST/Bund gap towards 205bp - down from a peak of 225bp in December.

By Padhraic Garvey, CFA and Benjamin Schroeder

US Treasuries continue to find excuses to at least test how lower yields feel

The market remains in a mood to test the downside for yields (10yr now at sub-4.6%), sparked by the run of lower-than-expected core PPI and CPI data and sustained in a sense by weaker-than-expected retail sales this morning. The latter, though, is very much second-tier data, and the market decided to conveniently ignore the firm-ish claims data, the pop in the Philly Fed, the higher-than-expected trade prices and the rise in the NAHB housing index (albeit all second-tier too)....

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