Mid-Week Update

December 11, 2024

CPI day is here and one of the last big macro days of the current year. The whisper number for the core is a touch higher than 0.3% M-o-M, so I would assume, given the backup in yields, this is now the modal outcome expectation. What are the risks? Markets are getting nervous about another sticky number and the resulting read-through to monetary policy as we advance further into this potentially truncated easing cycle. December still has an 80% chance for a cut, as recent FOMC speeches have guided us there. Current 2025 SOFR pricing has a bit more than another 2 rate cuts priced in, which you can argue is pushing a bit more insurance premium for potential economic weakness and a wait-and-see reaction function by the Fed as we start the new year.

2025 SOFR pricing SFRZ4Z5

This leaves bonds somewhat in no-mans land at the moment as you would really need to see economic momentum and/or inflation faltering to provide another boost to Treasury prices. So, far bonds have been helped lower by relatively weaker economic outcomes elsewhere, with European bonds recently guiding overall yields lower.

German 10-year yields

That said, our momentum and allocation models are currently long bonds, and we will hold those positions in the CPI print.

While there are no meaningful updates from the charts, Macro D will provide an update on the CAD and BRL while looking at the VIX.

Enjoy!