May 19, 2022

10-year yields heading to 1.25%, Chartmaster warns

Cornerstone Macro’s Carter Worth raises a big warning on the bond markets. With CNBC’s Melissa Lee and the Fast Money traders, Dan Nathan, Steve Grasso, James McDonald and Victoria Fernandez. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

Treasury yields held steady near recent lows on Friday morning as investors shrugged off the 5% annual jump in inflation reported in the previous session and appeared to buy the Federal Reserve’s argument that the price increases will be temporary.

The yield on the benchmark 10-year Treasury note was unchanged at 1.455% at 4:00 p.m. ET. The yield on the 30-year Treasury bond ticked down to to 2.142%. Yields move inversely to prices.

At one point on Friday morning, the 10-year yield traded at 1.428%, its lowest level since March 3. The 30-year hit its lowest level since Feb. 26.

The core consumer price index rose 5% in May on a year-on-year basis, the highest since the summer of 2008 and above the 4.7% increase expected by economists polled by Dow Jones.

Excluding food and energy, core CPI rose 3.8% year over year, the highest pace since 1992. A third of the increase was attributed to a sharp 7.3% rise in used car and truck prices.

Despite that, yields are down significantly from March, when the 10-year traded above 1.7% as the economic reopening gained steam. The benchmark yield was trading above 1.6% just a week ago.

Fed officials, including chair Jay Powell, have repeatedly stressed that high inflation readings are to be expected in the in the spring and summer but will likely be transitory. The central bank has said it is willing to let inflation run above its traditional 2% target as the economy recovers from the pandemic.

Bleakley Advisory Group’s Peter Boockvar, who is skeptical that inflation will be transitory, said in a note on Friday that price increases will broaden out in the months ahead.

“I understand it will be hard to maintain the aggressive increases in used car prices that many are cherry picking as a reason for transitory, but I also believe that we are just at the beginning of broad price increases in just about everything else. And rent increases on the services side, the biggest component of CPI, you ain’t seen nothin’ yet,” Boockvar said.

The University of Michigan released its national data for June on economic indicators Friday morning. Its preliminary consumer sentiment index increased to 86.4 from 82.9 in May. One-year inflation expectations fell to 4.0% from 4.6% in May, and five-to-10-year inflation expectations dropped to 2.8% from 3.0%.

There are no auctions due to be held Friday.

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