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Bonds Snap Back to Reality on Higher Core Services CPI

Even before this week’s rally began, we knew to be on the lookout for brief pockets of lower bond yields.  These corrections are common during selling sprees.  They serve as periodic pressure releases but are almost always meaningless when it comes to redefining any big picture trend. Today’s sell-off drove that point home and was perhaps easier for traders to facilitate in light of the last two days of gains.  Still, the selling required a catalyst and it found one in the “core services” component of today’s CPI report.  This is exactly the place the Fed wants to see better progress on inflation, and the numbers showed the opposite of progress.