CPI Runs Hotter Than Expectations

As mentioned yesterday the CPI release this morning could rile the markets a bit and that is the case as the number came in a bit hotter than consensus.

The CPI came in at up 2.1% which actually is just in the upper end of the consensus range, but above the overall consensus of 2%.  Certainly this is above expectations, but honestly it isn’t a real big deal.  The big deal is just in the direction–not the number itself.  In the end it is not what we think but instead is how the markets react.

The DJIA implied opening was around up 150 points, but after the release of the number the implied open was down 300–a 450 point swing.  Cooler heads are now prevailing and the loss has moderated.

The 10 year treasury was trading around 2.82% prior to the number release, but is now trading around 2.88%–below the short term upper band of 2.90%.  We will watch this during the day to see if we are going to breach the 2.90% on a closing basis today.

It is likely we will have a bit of downward pressure on income securities today but we will not change any positions, because we try to simply be correctly positioned (correctly positioned is defined as understanding securities we own and the reaction of prices to higher interest rates and accept the level of risk inherent in particular positions).