US T-note yield falls 2.3 basis points
US 10-year yields are nearing the lowest levels of the month. The dip accelerated after the PPI numbers, which diminish the threat of inflation. USD/JPY has gone down as well since the data, falling to 111.00 from 111.15 in a sleepy day in FX.
It's all about tomorrow's CPI. The tough balancing act for the FOMC is that growth is strong and employment is high but inflation isn't accelerating in the way the model says it should. Every hike is a leap of faith that inflation is coming but at some point they will shift to a wait-and-see mode.
As for bonds, the theme coming into this week was larger auctions due to the rising deficit but yesterday's demand at the 10-year sale was strong. Today it's onto 30-year bonds at 1700 GMT. They're trading at 3.10% in the when-issued market at the moment.
