(Oct 12) : Bond traders are looking to the latest consumer-price inflation figures and a planned appearance by Federal Reserve Chairman Kevin Warsh for insight into how quickly the central bank will continue raising interest rates. 

After a sharp jump in the wake of the Fed’s unanimous rate hike last month, Treasury yields were little changed last week, hovering around a 24-year high as investors wait for new data. 

The bond selloff was restrained by the significant slowdown in job growth shown in this month’s employment report, which lead traders to anticipate that the Fed will hold steady at its next meeting in late October. They continue to anticipate a quarter-point increase in December, followed by two more by late 2027. 

The positioning is raising the risk that a bigger-than-expected increase in the consumer price index in September will rekindle the selloff by putting pressure on the Fed to raise rates more aggressively.

“The risk to the CPI report is asymmetric, as a hotter print could signal that the Fed may need to pick up the pace of tightening, while a weaker, or at consensus print continues to feed into the Fed exercising caution going forward,” said Molly Brooks, US rates strategist at TD Securities.

Warsh will speak Thursday in a discussion at the International Monetary Fund’s annual meeting in Bangkok, Thailand. Two other closely followed Fed officials, governor Christopher Waller and Cleveland Fed President Beth Hammack, are also speaking. The central bank will start observing its usual communications blackout from Saturday, ahead of the two day meeting that ends on Oct. 28.

“This will be the last week before blackout period, so Fedspeak post CPI” will help markets have “less uncertainty” about the outcome of the next meeting, said Brooks. She said, “Warsh is likely to continue to shy away from forward guidance, which the market is expecting.”

The consumer price index will be released Wednesday. Economists expect it to rise 0.6% from the month before, up from 0.4% previously. The core measure, which strips out volatile food and energy prices, is seen easing to 0.2% from 0.3%, according to a Bloomberg survey of economists. Both year-over-year measures are forecast higher, with headline figure seen running at a 3.6% pace and the core reading at 2.5%.

The bond market will be closed Monday for a public holiday. US equities will remain open for trading. 

uploaded by Isabelle Francis