Dueling Narratives: Inflation vs Flight to Safety

The ultimate inflation takeaway will depend on Thursday's PPI to some extent, but this morning's CPI data--in and of itself--was unequivocally bad for the bond market. Fed funds futures reacted immediately (as did the rest of the yield curve, for that matter) as the results greatly increased the odds of additional rate hikes. Even now, rate hike odds remain higher today than for most of the past 2 weeks, but there was a rather stunning correction that resulted in longer-term rates making it all the way back to positive territory (more than 15bps in the 10yr, peak to trough)! This is not an example of traders parsing the CPI data and having second thoughts (CPI didn't have any secret good news for bonds). The only obvious way to even attempt to reconcile the reversal in bonds is via the biggest day of selling in the stock market in more than 2 months. The damage is even worse for tech stocks and AI-related concerns could further play into a flight-to-safety in the bond market. No objections here.