US 10-year Treasury yields extend gains above 2.80% as US CPI to upside surprise


  • Advancing Treasury yields are indicating that the US CPI is likely to surprise on the upside.
  • The upbeat US NFP has already bolstered the odds of status quo maintenance by the US Inflation.
  • Fed’s Bullard sees interest rates at 4% by the end of CY2022.

The 10-year US Treasury yields are aiming to recapture the weekly high of 2.81% ahead of the release of the US Consumer Price Index (CPI). Bond buying is squeezing by the time as investors believe that the price pressures could surprise on the upside despite the downward consensus.

As per the preliminary estimates, a decent drop is expected in the plain-vanilla CPI by 40 basis points (bps) to 8.7%. Thanks to the oil prices, which remained vulnerable in July, and have trimmed inflation expectations. However, the US Nonfarm Payrolls (NFP) remained surprisingly upbeat than the expectations.

An addition of 528k jobs in July against the expectations of 250k has indicated that the overall demand is upbeat and investments are driving higher, which has led to a rise in employment generation. No doubt, the concept is indicating an elevation in price pressures. This may keep the odds of continuation of a hawkish stance intact.

The deviation between 10-year and two-year US Treasury yields is the widest since 2000 and therefore, recession fears are sky-rocketing. Fed's St. Louis President James Bullard has also warned for an upside surprise by the US CPI and is eyeing interest rates to 4% by the end of CY2022. The margin between current rates at 2.50-2.75% to 4% favors two more rate hikes: 50 bps and 75 bps, which are sufficient to place a recession situation in the US.

 

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