March CPI and More Treasury Supply Likely to Keep Pressure on Yields

  • We open the week with Treasuries continuing to be on the back foot as yields probe ever higher. The 10yr is at 2.75%, the highest level since January 2019.


  • The upward pressure on yields is likely to remain this week as the March CPI report, due tomorrow, is expected to be another ugly report.


  • Overall CPI is expected to increase 1.2% vs. 0.8% the prior month and that should drive the year-over-year print to 8.4% vs. 7.9%. If realized, the 8.4% would be the highest since 1981.


  • Core CPI (ex-food and energy) is expected to increase 0.5%, matching the February increase, while YoY is expected to edge up to 6.6% vs. 6.4% the prior month. The 6.6% pace would be the highest since 1982.


  • Needless to say, those types of gains will only heighten the rate-hiking ambitions at the Fed with a 50bps hike in May looking almost like a done deal at this point.


  • Beginning with April, however, large monthly gains from last year will start to roll off the YoY calculations which may allow those numbers to plateau in coming months, but with the war in Ukraine keeping food and oil prices elevated there’s little hope that we’ll see significant declines in either  the monthly or YoY numbers for the foreseeable future.


  • Meanwhile, the Treasury will be auctioning off 3yr, 10yr, and 30yr debt this week and that should also keep the pressure on yields until the new debt is taken down. Tomorrow’s $34 billion auction of 10yr notes should be absorbed without difficulty due to the multi-year high in yields but until the debt is put away, don’t expect much in the way of a rally.


  • The Russians are redirecting their energies to the eastern and southern portions of Ukraine so expect a renewed emphasis there with little in the way of good news this week.


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.55 2.82 2.92 3.07 3.29 3.75
0.50 2.54 2.79 2.86 2.96 3.15 3.64
1.00 2.53 2.76 2.83 2.92 3.06 3.51
2.00 2.75 2.77 2.84 2.94 NA
3.00 2.79 2.88 NA
4.00 2.83 NA
5.00 2.80 NA
10.00 NA

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Published: 04/11/22 Author: Thomas R. Fitzgerald