The Treasury ends its refinancing operation tonight with a $20bn 30-yr Bond auction, but today’s focus goes to US inflation numbers. August headline CPI is expected at 0.6% M/M and 3.6% Y/Y (up from 3.2% Y/Y) with core CPI prognosed at 0.2% M/M and 4.3% Y/Y (from 4.7% Y/Y). We believe that an upward surprise won’t alter Fed plans to keep policy rates stable at next week’s meeting. In such scenario, it could even be the longer end of the curve which underperforms. As a WSJ article suggests today: “for the past year, officials have placed the burden on evidence of a slowing economy to justify pausing rate increases. As inflation cools, the burden has shifted toward evidence of an accelerating economy to justify higher rates.”
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