US Inflation update sparks bond market tension [Video]

The week started on an optimistic note ahead of today’s US inflation update, tomorrow’s FOMC decision and Thursday’s European Central Bank (ECB) and Bank of England (BoE) decisions. The US 2-year yield advanced to 4.77% and the 10-year yield tested the 4.30% resistance, but both are down this morning, as bond investors lie in ambush before the US inflation update that will hit the headlines in a couple of hours from now.

Headline CPI in the US is expected to have steadied on a monthly basis thanks to subdued energy prices and the yearly figure may have eased from 3.2% to 3.1% in November. Core inflation is seen steady at 4%. A softer-than-expected set of inflation figures could further boost the Fed doves and appetite in US bonds, but gains will likely remain limited before tomorrow’s Fed decision and economic forecasts.

Elsewhere, US crude is gently recovering toward the $72pb level on threats that OPEC would extend and deepen cuts in case the selloff continued, but growing shale production in the US prevents the bulls from getting charmed by OPEC support.