Trading in the Treasury market on Wednesday was marked by two distinct lines of thinking. The release of September’s hot producer price index (PPI) had a significant impact on the policy-sensitive 2-year rate, pushing it back above 5%. However, the rest of the market seemed to largely overlook the report.
The Impact on the 2-Year Yield
The 2-year yield (BX:TMUBMUSD02Y), which reflects expectations of Federal Reserve policy over a two-year period, experienced an increase of up to 4.3 basis points in New York morning trading following the release of the PPI data. It reached a level of almost 5.03%, surpassing Tuesday’s closing level. This rise in yield suggests that not everyone is convinced that policy makers will succeed in combating inflation and be able to halt interest rate hikes.
Containing Inflation: A Challenge for the Fed
Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York, expressed skepticism about the Fed’s ability to contain inflation. He believes that the Fed will need to carefully analyze this inflation data and reflect on their current strategies. It remains uncertain whether the Fed can truly declare victory against inflation.
The Consumer Price Index Report
Market participants eagerly await the release of the consumer price index for September, which is scheduled for Thursday. This upcoming report is expected to provide further insights into the state of inflation.