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Higher US CPI not enough to drag yields across the finish line

On the initial reaction to the US CPI data yesterday, 10-year Treasury yields jumped from 3.99% to 4.06% before ultimately settling lower below the 4% mark. That’s the sort of thing which is seeing bond sellers go out on a whimper after the action from last week. It comes as yields fail to take out a key technical level in the form of the 200-day moving average (blue line):

US Treasury 10-year yields (%) daily chart

The data yesterday was supposed to be a trigger event of sorts to tide yields across the key technical hurdle. And we even got decently higher inflation numbers, at least on paper, to work with. But at the end of the day, even that is not enough to drag yields over the finish line it would seem.

So, what’s next?

I’ve said time and time again that this is a market desperate to grasp at anything to keep the disinflation narrative running. The US CPI data yesterday was a bit of a setback but even then, traders managed to pull a 180° to the reaction after.

That says a lot about the market appetite and which way the overwhelming bias in broader markets is leaning towards. We’re not quite returning to the November and December sentiment just yet but all it would take is a little nudge to get this market going again.

For now, the fact that yields are capped as seen above should also limit the dollar’s potential in the near-term. That especially for USD/JPY, which is now facing a test of the 145.00 mark again after hitting a high of 146.40 yesterday.

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