Fiscal Developments to Eclipse CPI Impact on US Yields
US bond market insiders suggest that fiscal factors, rather than inflation data, are the key drivers of rates, as break-even rates sit below expected core CPI.
The shift toward higher US yields has often been linked to geopolitical tensions and rising energy costs, yet the market's inflation outlook remains notably calm. Core CPI for July is forecast at 2.5% year-on-year, but break‑even rates are already trading below that threshold.
This disconnect implies that inflation is not the primary force pushing yields higher. Instead, traders are increasingly watching fiscal developments, which could overshadow the upcoming CPI print.
The subdued inflation compensation signals a benign backdrop for bonds, potentially limiting further yield spikes if fiscal news stays contained.
Source: FXStreet Forex News