10-year yields advance by roughly 3 bps to 1.694%
It is all about inflation today with the US CPI report the key risk event in the market.
As much as everyone expects this to be the start of a potentially prolonged bump in inflation pressures, which may or may not be sustained, base effect adjustments should easily see the inflation numbers tick higher - if not this month, then the months ahead.
The year-on-year reading, which the market focuses on, is rather distorted starting from this month after prices fell drastically in March and April last year due to the pandemic. This same effect should continue until the latter stages of the year at least.
Central banks have already warned about this and how such pressures may yet just be transitory. In the months ahead, there's still other factors to consider as well such as Biden's fiscal stimulus flowing through, higher input cost prices due to supply constraints, and pent-up demand returning back into consumption activity.
At the end of the day, it will depend on whether the Fed will blink or if the (bond) market has gotten too far ahead of itself. In any case, a step up in the readings today will be do little to derail the market's train of thought to start the year surely.
