Bond Market Sell-Off Accelerates as Energy Prices Soar
The global bond market sell-off accelerated yesterday, fueled by rising energy prices and stronger-than-expected US PPI data. The price of Brent crude oil hit a fresh high of $110/barrel overnight. The US Federal Reserve's decision to hike interest rates next week is becoming increasingly likely, with 18bps now priced into the US rate market, up from 13bps at the end of last week.
The strong PPI report revealed that components feeding into the PCE deflator were firmer than expected, adding around 0.1ppt to the August print. Healthcare costs rose by 0.3%M/M and airfares by 3.2%M/M.
Today's US CPI report is crucial for Fed hike expectations and the dollar index. A softer reading could trigger a bigger sell-off in the dollar, while a stronger reading will continue to support the USD.