Yields Rise Ahead Of Wednesday's Consumer Price Index

The three-month T-bill yield rose on Monday, accompanied by a rise in Treasury yields, as traders priced in the possibility that the Fed fund rate will rise above 5% next month and remain there until at least the end of the month.

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As investors anticipate the next major update of the United States inflation rate in two days, Treasury yields advanced in late morning trading on Monday. According to inflation traders, as indicated by the March consumer-price index, the annual inflation rate for March was expected to be a bit higher than the February rate, whereas the March rate was expected to be a bit above 5%.

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Managing director of Nicholas Wealth Management, David Nicholas, says, “A real shock for the market may come from additional CPI reports that indicate inflation is not being impacted by banking-related contagion.” Markets underestimate the time it will take to hit the Fed's 2% inflation target. “Rate cuts are not part of the Fed's ‘base case’ so there must be much more disruption for the economy and markets to reach where we are,” he added. 

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The yield on the 10-year Treasury note fell earlier in the day amid thin post-holiday weekend trading after the holiday weekend. These preliminary moves were attributed by some analysts to the recent tiff between Beijing and Washington, following a U.S. Navy destroyer sailing through waters near the Spratly Islands in the South China Sea area, a key point of connectivity for global trade which Beijing claims to be it's own.

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After Taiwanese leader Tsai Ing-wen met with U.S. House Speaker Kevin McCarthy at a meeting on Thursday, the Chinese military showed off its aggressive military posture following weekend exercises around Taiwan. Beijing has responded with aggressive military posturing as a result of the meeting.

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