Investors have mixed economic emotions as of late. Just like most market participants, I, Jason Galanis, am shocked about the steep decline of U.S. bond prices combined with the strong spike in consumer prices.
Wednesday saw U.S. Treasuries fall, right as data showed a slight rebound in U.S. consumer prices that occurred in September. The news undoubtedly caused an effect: it quelled some bets that assumed the Federal Reserve may postpone their projected plans to raise interest rates by next year.
It’s the global slump that’s making people worry about the Fed’s next move. Not only do disinflation worries bother the United States, but it’s also bothering Europe. Both worries amid the global slump have made U.S. policymakers assume that the Fed will stick with their near-zero interest rate in order to keep supporting the rather modest economy recovery.
Though, it looks like the markets may get their answer regarding that matter soon: The Federal Open Market Committee is expected to meet by next Tuesday and Wednesday.
In other related news, the U.S. Department of Labor recently broke news concerning the Consumer Price Index, otherwise known as the government’s inflation gauge. According to their statement, the CPI ‘edged up a little – 0.1 percent – last month.’ This movement came after the CPI saw a 0.2 percent drop back in August.
Of course, the inflation-related news spurred the selling of Treasuries. The selling sent the then-current benchmark yields to their highest point in a week—rising to as much as 2.25 percent. 30-year yields settled well around 3 percent in early trading this week.
The sudden increase was immediately contrasted against the 16-month low seen last week—as low as 1.865 percent. The hard drop was attributed to the concerns about the lack of global economic growth and the sudden purchasing of Treasuries buying to stifle short exit bets held against them.
The aforementioned CPI report also buffed Treasury Inflation-Protected Securities, where their principal and interest payments were handily adjusted against the projected CPI. The yield gaps between the aforementioned TIPS and standard Treasures widened considerably, leaving their lowest known levels since 2011.