I’ll move myself and my family aside
If we happen to be left half alive
I’ll get all my paper and smile at the sky
For I know that the hypnotized never lie— The WHO
I’d like to follow-up yesterday’s blog post and the dilemma for the Fed in regards to low inflation and low wages, as in, which way will interest rates turn? Today the bond yields dropped in spite of a much higher PPI (producer price index), which measures wholesale inflation. If producers cannot pass higher input costs onto the consumer, profits will suffer. Tomorrow, the BLS will release the consumer price index, CPI, which is expected to be up 0.1 percent on the core and 0.3 percent on the headline number. If the data is higher than market consensus it will be interesting to see if the BONDS and NOTES shrug off inflation fears and continue the recent rally. The price of the 10-year note closed above the 200-day moving average for the first time in two months, even as the 30-year bond has been above the 200-DMA for the same period of time. The rally in the 10-YEAR NOTE acted to flatten the curve but I warn you, readers, that this curve is far from being flat by historical measures. Two-hundred eighteen basis points is far from being flat and again I remind readers that a year ago the 2/10 curve was a much flatter 145 basis points.