Lower CPI today should have been a green light for lower yields but instead the opposite is unfolding with 5-year yields tracking from 3.81% after CPI to 4.01% last — a swing of 20 bps.
The rise above 4% is the highest since just before the banking rout.
What could be unfolding is that the bond market is pricing in a soft landing that includes the Fed holding rates higher for longer. Or there could be some position squaring ahead of the FOMC.
I would also be mistaken if I didn’t mention the international backdrop. UK jobs were strong today and now the UK rrates market is pricing in a 50% chance that rates get to 6% late this year. That’s put pressure on global rates.