Global Factors First: Was There A US CPI Today?

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The hottest inflation in years, by far, the very thing those predicting a BOND ROUT!!!! have been saying for all that time, and bonds do the entire opposite. For both April’s and now May’s price reports.

What is going on here?

Transitory inflation, absolutely, but more so why the market is increasingly confident about this. After all, if the last two months of consumer prices were at all possibly the first of many more to come, the very last place anyone would be is in these particular instruments. Forget the ’94 “massacre”, any rational chance these inflation estimates continue we’d end up remembering the scars of ’21 for a far longer stretch of the future.

This is not happening for several reasons, I believe, a couple of related cross-currents that, if more than short run themselves, absolutely would undermine whatever price momentum in producer as well as consumer prices. And these things all intersect not just in anti-reflation UST’s, but elsewhere around the world.

Beginning with UST’s, though, there’s the combination of Janet Yellen and Jay Powell. No, not in the way inflation proponents most often propose: theirs being “money printing” and the reckless federal government combining forces so as to have unleashed what we are now seeing just as the beginning.

On the contrary, both Yellen and Powell are, in fact rather than theory, contributing negatively to inflationary pressures by (sorry for the dead horse) removing collateral; the latter intentionally, or inadvertently via intentional policy, while the former because of statute. Yellen gave the system bills by accident in ’20, and now takes them back by accident in ’21 (what a world).

Thus, just as a start, the near perfect inverse correlation between the Fed’s reverse repo and LT UST yields remains perfectly intact. In fact, the big drop in yields today corresponded nicely as RRP usage hit a new high of $534.9 billion, up more than $30 billion just from yesterday.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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