10 Year Treasury Hovers Around 3% As Markets Await CPI Report

Today’s $33 billion auction of the 10-Year Treasury Bonds saw tepid demand.  Bids were submitted for 2.41x the amount offered – the last six auctions have been averaging 2.50 times.  Investors are in a wait-and-see mode as they are anticipating this Friday’s CPI release.  Recent data shows that inflation is peaking (good news), but the question is what is on the other side? A stubborn plateau or a downhill?   The core CPI report (excluding food and energy) is expected to drop to 5.9% – after April’s rate hit 6.2% (with a 0.6% month-over-month gain).  Wage growth will also be in the spotlight. Recent data indicates that more expensive “large goods,” such as autos, appliances, and furniture are experiencing slower price gains on softening demand. However, the services sector is still suffering from high demand and a shortage of workers. The European Central Bank is set to announce new projections for growth and inflation. This week’s meeting may see a commitment for their own 50 basis point hike.   France’s central bank is describing the potential move as “normalization but not tightening.”  The US Fed meets next week and has communicated their intent to raise the Fed Funds rate by 50 bps, followed by another 50 bps in July. The September meeting is the subject of speculation, hence the focus on Friday’s CPI and the accompanying commentary at next week’s meeting. Stay tuned… By David R. Pascale, Jr. , Senior Vice President at George Smith Partners