Bond Market Update

Data Recon

• The Producer Price Index for final demand increased 0.5% month-over-month (Briefing.com consensus: 0.2%), with the index for final demand services up 0.7%. The index for final demand, excluding food and energy, jumped 0.6% month-over-month (Briefing.com consensus: 0.3%). On a year-over-year basis, the index for final demand was up 3.0%, unchanged from November, while the index for final demand, excluding food and energy, was up 3.2% versus 3.0% in November.
  • The key takeaway from the report is the lingering 3-handle on the year-over-year changes, which will keep alive concerns about pass-through (to the consumer) and possible margin compression (for wholesalers and retailers) if they don't pass-through their higher costs.
• Yield Check:
  • 2-yr: +1 bp to 3.56%
  • 3-yr: UNCH at 3.62%
  • 5-yr: +1 bp to 3.82%
  • 10-yr: +2 bps to 4.25%
  • 30-yr: +3 bps to 4.88%