The Market Today

5-Year TIPS-Implied Inflation Rates Jump to Record-High After CPI Report

by Craig Dismuke, Dudley Carter


Bloomberg Survey of Economists: The November Bloomberg Survey of Economists is scheduled for 8:00 a.m. CT.  This will be the first survey collected after the Fed’s taper decision and after market sentiment became considerably more bullish on rate hikes in 2022.

Job Openings: The JOLTs report (9:00 a.m.) on job openings and labor turnover is expected to show a small pullback in openings in September.  Openings already dropped in August from a record-high level, but the data, overall, continue to show evidence of an extremely tight labor market – despite 4.2 million payrolls still being missing.

Consumer Confidence: The University of Michigan’s preliminary November report on consumer confidence (9:00 a.m.) is expected to show an uptick from a disappointing October report.  Confidence dropped in October to its second-lowest reading in the past 10 years. Consumer inflation expectations are expected to continue higher.

Fedspeak: New York Fed Bank President Williams is on the tape at 11:10 a.m.


Fed’s Daly Doubles Down on Patience, Saying Eye-Popping October CPI Warrants Watching Vigilantly, Not Rate Hikes: San Francisco Fed President Daly was the first official to tackle the task of defending the consensus view of transitory inflation after October’s CPI report sharply exceeded expectations. Daly was steadfast in her belief that “it would be premature to start changing our calculations about raising rates” despite again describing current inflation levels as “eye-popping” and acknowledging that “it hurts [people’s] pocketbook.” “Right now, uncertainty requires us to wait and watch with vigilance,” Daly said.


Sizzling CPI Report Roils Bond Market, Ruins 30-Year Auction, and Could Give Fed’s Transitory Defense a Real Test: Yields were modestly higher overnight Wednesday, partially unwinding Tuesday’s rally spurred by reports Fed Governor Brainard was in contention for President Biden’s nod for Fed Chair. The relatively calm tone, however, was violently upended by October’s sizzling CPI report that showed annual rates rose more than expected to their fastest paces since the early 1990s. Treasury yields surged as inflation expectations soared. The 2-year yield ran from up 3.0 bps to up 8.8 bps. The 5-year yield extended a pre-release 3.6-bp gain to 10.5 bps. The 10-year yield rose from up 2.4 bps to up 6.9 bps. The upward momentum accelerated again after an ugly auction of 30-year Treasury bonds. A strong price rally in recent weeks had driven the 30-year Treasury bond from 2.17% on October 8 to 1.81% by Tuesday, a key yield support level. However, the Wednesday auction tailed by a record 5.2 bps amid the ongoing bond rout. After reaching as high as 1.96%, the 30-year bond closed up 8.6 bps at 1.90%. The 10-year yield jumped 9.9 bps to 1.55%, its biggest jump since September 23. Ten-year market-based inflation expectations rose 6.4 bps to 2.71%, the highest level since May 2006. The 5-year Treasury yield rose 13.5 bps to 1.22%, the second highest mark since February 2020. Five-year market-based inflation expectations spiked 11.0 bps to 3.10%, a high in records since 2002. The 2-year yield jumped 9.2 bps to 0.51%, the biggest jump and highest level since March 2020, as 2-year market-based inflation expectations moved up 13.6 bps to 3.28%, the highest since October 2005. Fed funds futures repriced to fully expect two rate increases next year. The move in rates hit stocks for a second session. The Nasdaq sank 1.7%, leading smaller declines of 0.8% and 0.7% for the S&P 500 and Dow, respectively.

The stock market was open Thursday while the bond market broke for Veterans Day. The Dow slipped 0.4%, the Nasdaq gained 0.5%, and the S&P 500 ended little changed. Approaching U.S. trading, futures tracking all three indices were moving higher despite Treasury yields adding to Wednesday’s sharp post-CPI gains. Stocks generally firmed up across Asia and Europe’s Stoxx 600 inched 0.1% higher to a new record at 6:45 a.m. CT. U.S. stock futures were up between 0.2% and 0.3%. While European yields had pulled back, Treasury yields continued their push higher. At 7:25 a.m. CT, the 2-year yield was 0.7 bps higher at 0.52%, a new high since March 2020. The 5-year yield had added 1.0 bp to 1.23%, closing in on its highest mark since February 2020. The 10-year yield had also added 1.0 bp to 1.56%, still well below October’s peak at 1.70%.

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