We knew there was a lot riding on today's CPI data and that it was highly likely to inspire a big move higher or lower for bonds if it came in much higher or lower than expected.  In today's unfortunate case, core CPI surged to 0.6% vs forecasts calling for 0.3% and a previous reading of 0.3%.  This is the sort of surge that very few economists predicted (obviously... the median was 0.3% after all). 

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Markets were priced for 0.3% and are thus quickly adjusting to the new inflation reality as well as fears surrounding a Fed announcement next week that will certainly be even more hawkish than it otherwise would have been.  Translation: bonds are tanking, quickly (stocks too, for that matter).

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Why are stocks and bonds tanking symmetrically?  This is just the classic Fed accommodation trade.  In other words, hotter CPI instantly upgraded the odds of higher Fed rate hikes with a small increase to next week's outlook (10bps) and larger increases to the hikes by the end of the year and/or middle of next year (25bps).  

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As for the bigger picture, between yesterday afternoon's bond market weakness and this morning's sell-off, the exact same trendline we've been following remains a perfect floor for the rising rate momentum.  

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