Bond Market Update

Data Recon

• Total CPI was up 0.3% month-over-month in June (Briefing.com consensus: 0.2%) following a 0.1% increase in May. That left total CPI up 2.7% year-over-year, versus 2.4% in May. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus: 0.3%) following a 0.1% increase in May. That left core CPI up 2.9% year-over-year, versus 2.8% in May. There were some positive inflation readings, like shelter moderating to a 0.2% m/m increase from 0.3%, and new vehicle prices sliding 0.3% for the second straight month. However, there were some tariff distractions, so to speak, with apparel prices up 0.4% after being down 0.4% in May, and household furnishings and supplies prices rising 1.0% following a 0.3% increase in May.
  • The key takeaway from the report is that it will keep the Fed in its wait-and-see mode, not yet convinced that tariffs won't drive up inflation.
    • The food index increased 0.3% month-over-month and was up 3.0% year-over-year.
    • The energy index increased 0.9% month-over-month and was down 0.8% year-over-year.
    • The shelter index increased 0.2% month-over-month and was up 3.8% year-over-year.
    • The used cars and trucks index decreased 0.7% month-over-month and was up 2.8% year-over-year.
    • The apparel index increased 0.4% month-over-month and was down 0.5% year-over-year.
    • The services index was up 3.8% year-over-year (services less rent of shelter were up 3.8%).
    • The all items index less shelter was up 2.0% year-over-year.
• July Empire State Manufacturing 5.5 (Briefing.com consensus -11.6), following -16.0 in June. The dividing line between expansion and contraction is 0.0.
• Yield check:
  • 2-yr: unch at 3.90%
  • 3-yr: unch at 3.87%
  • 5-yr: unch at 3.98%
  • 10-yr: -2 bps to 4.41%
  • 30-yr: -2 bps to 4.95%