In dire need of a market-friendly CPI report, traders seemed to know that's not what was coming as treasuries opened with bearish gaps leaving the 5-year yield within a basis point of its 5/4 yield crest.
Crude oil was also up another $3.50, which I'm sure didn't help. Expectations were for headline CPI to be up 0.6% month over month, which it was. However, the core component was expected to be up 0.3% m/m but came in up 0.4%, and the headline year over year number was expected to jump from 3.3% to 3.7% but it jumped to 3.8%. So, the report was indeed market unfriendly, although maybe not deserving of the selling which preceded it.
READ MORE:
The 5-year yield got to within 0.1 bps of its 5/4 high in the seconds which followed before all the maturities bounced. After opening softer yesterday, treasuries made one feeble recovery attempt before yields headed up for good.
The low yields for the day were made at 9:50, the same time crude oil made its day-session low, and by 11:00 the 5-year had filled the gap it had left last Wednesday while it took the 10-year and 30-year until after 1:00 to fill theirs. Only the 30-year yield remained below its 62% retracement of the rally from 5/4 after yesterday, but now all 3 maturities have signaled that the low yields which they posted last Thursday are likely to hold.
Interestingly, oil printed its high for the day yesterday at 12:50, but the 5, 10 and 30-year were all at their high yields for the day when they closed at 3:00, at which point oil had fallen $2 from its high. Those several hours when oil traded down while yields continued up aren't enough to have signaled a decoupling of the 2 markets, but I'll be watching that just the same.
That said, since today's news was about Inflation, it seemed to be a good time to mention another market that looks alarming, copper. Copper futures made their all-time high on January 29th at 6.702, while prior to this year the futures had never traded above 5.852, and yesterday it traded higher than it has on any day other than January 29th.
A simple Google search revealed that the primary use for copper is in electrical wiring, which impacts just about everything I can think of, but it's also used for plumbing and HVAC, there are agriculture uses including for fungicides and supplements, and the list went on and on.
In just the last 5 days its price has increased by about 10% and while that same Google search suggested that not only is demand up, but that there are supply chain problems stemming from the war contributing to price increases, the fact that copper made its all-time high in January, long before the war began, tells me there's more to the story.
Oil and gold grab the headlines, but if inflation matters then the price of copper does as well. As 9:00 approached treasuries had bounced 2-4 bps, but small bearish gaps remained and for me, expectations for any further improvement beyond what we saw last week are no more than hope.
