Bond Market Update

Data Recon

• U.S. Treasuries have dipped from their opening highs after the CPI report for July matched expectations at the headline and core levels. Shorter tenors have been at the forefront of the post-data selling while the long bond remains slightly higher.
• Total CPI was up 0.2% month-over-month in July, as expected, and core-CPI, which excludes food and energy, was up 0.2%, also as expected. The index for shelter was up 0.4% month-over-month and accounted for nearly 90% of the increase in the all items index. On a year-over-year basis, total CPI was up 2.9%, versus 3.0% in June, and core-CPI was up 3.2%, versus 3.3% in June.
  • The key takeaway from the report is that it points to ongoing disinflation; hence, it won't change the market's belief that the Fed will cut rates by 25 basis points in September even though CPI inflation is comfortably above the Fed's 2% goal, which is oriented around PCE price inflation that is currently at 2.5%.
• Yield Check:
  • 2-yr: +3 bps to 3.97%
  • 3-yr: +2 bps to 3.78%
  • 5-yr: +1 bp to 3.69%
  • 10-yr: +1 bp to 3.86%
  • 30-yr: -1 bp to 4.15%