Is This The End of The Friendly Trend?

Bonds weathered their biggest day of selling since September today and their only notable day of selling since the recent downtrend in rates began in mid-October. The blame game was simple: CPI was much higher than expected and there were no silver linings in the report's internal components. Multiple Fed speakers (including Warsh 2 weeks ago) have reiterated the Fed's focus on inflation as opposed to the labor market. Even before the data, Waller said a 0.3 core CPI reading could mean a 50bp rate hike in December (and 0.3 is what we got). Fed Funds Futures and shorter-dated Treasuries logically led the selling, but it was big enough to still hit 10yr yields for 10bps. The potential for Tuesday to mark a shift in the trend should be respected as a possibility, but not necessarily a foregone conclusion. We may have some extra volatility associated with the mid-week holiday closure and the true fate of the trend will depend on more than just inflation. That said, it definitely makes it less likely that the rally can continue without new fuel.