Inflation Down, Bond Prices Up

A report this morning from the Bureau of Labor Statistics portrayed a much higher degree of deflation than analysts had anticipated. In June, the Producer Price Index fell 0.2% against an expectation of a 0.4% rise. That leaves the year-over-year rate at minus 0.8% against an expected rise to just minus 0.2%. At the core level, without food and energy, the monthly decline of 0.3% was a far cry from the forecast of a 0.1% rise. The year-over-year core rate slipped to 0.1%, down from May’s 0.3% and also down from the expected rise to 0.4%.

The Treasury market was already having an early morning safe-haven rally as rising numbers of COVID cases around the country threaten to derail and delay reopening efforts. The 3/8 point price gain for the Ten-Year has pushed that issue’s yield down to around 57 basis points as prices rise all along the curve. The Two-Year is yielding around 13 basis points with the Long Bond rallying around a point-and-a-half for a yield of 1.25%.

Crude oil prices have slipped a bit to around $39 while gold has rallied another $6 to $1,810. Equity futures are pointing to a weak opening for those markets; the tech sector being an exception.