U.S. CPI: lower-than-expected CPI may prove insufficient to stem yield surge. U.S. CPI: lower-than-expected CPI may prove insufficient to stem yield surge. U.S. CPI: lower-than-expected CPI may prove insufficient to stem yield surge.

U.S. CPI: lower-than-expected CPI may prove insufficient to stem yield surge.

Althea Spinozzi

Head of Fixed Income Strategy


  • Breakeven rates are climbing alongside commodity prices. Consequently, even in the event of inflation surprising on the downside, concerns persist about entrenched inflationary pressures.
  • Ten-year yields are in an uptrend. If tomorrow’s inflation report indicates strong price pressure, yields are likely to rise and test resistance at 4.5%. In order to remove the uptrend, yields need to drop and close below 4.17%.
  • Two year yields are also on the rise toward 4.9%.

Market expectations:

Economists anticipate the CPI report for March to reveal a 0.3% rise in consumer prices on a monthly basis, a slight decrease from the 0.4% growth observed in February. However, the annual inflation rate is expected to rise from 3.4% to 3.2%. This anticipated uptick in annual inflation signals ongoing inflationary pressures within the economy, albeit at a slightly slower pace month-on-month.

Yet investors have to bear in mind that breakeven rates are rising together wutg cinn and have hit the levels seen in November last year.

Source: Bloomberg.

Possible outcomes for the bond market:

  1. Better-than expected inflation: bull-steepen the yield curve and bolster Treasuries across various tenors. However, the market's response might vary if one component surprises while the other remains unchanged. Notably, an unexpected downside surprise in US core CPI, particularly in core services, could have a more pronounced impact on bond markets, signaling an acceleration of disinflationary trends. Conversely, a better-than-expected headline CPI, while still impactful, might not lead to a significant rally in bond markets due to the prevailing sentiment of stabilization around the 3% mark since June last year.
  2. Higher-than-expected inflation: bull flattening of the yield curve, Treasuries falling across maturities. The possibility of higher-than-expected CPI outcomes presents a scenario for which markets may be unprepared. Heightened inflationary pressures pose a challenge for the Federal Reserve, potentially necessitating a delay in planned interest rate cuts. Such a development would have significant implications for bond markets, potentially leading to increased volatility and reshaping investor expectations regarding future monetary policy actions.
  3. Inflation meeting expectations: twist-steepening of the yield curve with front-term Treasuries remaining rangebound and long-term Treasuries dropping. Inflation simply meeting expectations isn't sufficient to solidify a bond bull rally. The current upward trend in breakeven rates, coupled with rising commodity prices, suggests a looming risk of inflation resurgence, particularly if the Federal Reserve opts to initiate rate cuts. Consequently, the long end of the yield curve is poised to trend upwards.

Key US Treasury levels:

The uptrend in ten-year yields persists, supported by a lack of divergence in the Relative Strength Index (RSI), suggesting a probable ascent to challenge resistance at 4.5%. In case of better-than-expected CPI numbers yields may to drop to test support at 4.4%.

Caption: 10-year US Treasury yields. Source: Saxo Platform.

The 2-year US Treasury yield continues its upward trajectory, bolstered by a positive sentiment reflected in the Relative Strength Index (RSI). Anticipating an increase in the Consumer Price Index (CPI), there is potential for the 2-year yields to ascend further, possibly testing resistance at 4.9%. Conversely, if the CPI surprises on the downside, it may prompt a retreat in yields, testing the 200-day Simple Moving Average (SMA) at 4.69%. Nevertheless, we maintain the view that a significant drop below 4.49% is improbable, thus affirming the persistence of the uptrend.

Caption: 2-year US Treasury yields. Source: Saxo Platform.

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18-Mar Bank of England Preview: slight dovish shift in the MPC amid disinflationary trends.
18-Mar FOMC Preview: dot plot and quantitative tightening in focus.
12-Mar US Treasury auctions on the back of the US CPI might offer critical insights to investors.
07-Mar The Debt Management Office's Gilts Sales Matter More Than The Spring Budget.
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21-Feb Four reasons why the ECB keeps calm and cuts later.
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12 Feb Ultra-long sovereign issuance draws buy-the-dip demand but stakes are high.
06 Feb Technical Update - US 10-year Treasury yields resuming uptrend? US Treasury and Euro Bund futures testing key supports
05 Feb  The upcoming 30-year US Treasury auction might rattle markets
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