Interest Rate Roundup

Thursday, June 14, 2007

PPI comes in a bit hot...

We just got the Producer Price Index for May. Here are the details ...

* Headline PPI rose 0.9% last month, a bigger increase than the 0.6% gain expected by economists. The year-over-year PPI rate jumped to 4.1% from 3.2% a month earlier. That's the biggest YOY increase since June 2006.

* The "core" PPI, which excludes food and energy, rose 0.2%. That was the biggest increase since a 0.4% rise in February, but it was right in line with the average forecast of economists. The year-over-year rate of core inflation ticked up to 1.6% from 1.5%.

* Further up the "food chain," intermediate term goods were up 1.1% on the month and 3.7% on the year. Core intermediate goods inflation was up 0.4% on the month and 2.9% on the year. Crude goods rose 2% on the month and 11.5% on the year. Core crude goods rose 0.1% on the month and 9.2% on the year.

These inflation figures certainly weren't a blow out. But they seem to "validate" the move up in bond yields to some degree, because they show core producer prices ticking higher. Tomorrow's Consumer Price Index is much more important, though, in terms of potential bond market impact.

Speaking of which, long bond futures dropped as much as 18/32 after the number came out, but have since rebounded to -9/32. Ten-year yields are up about 2 basis points to 5.22%, but off their post-PPI highs.

By the way, I realized as I was going back over some of my recent posts that I sometimes didn't make clear whether I was talking about the cash part of the bond market or the futures. Typically, I'm referring to the futures when it comes to references to bond prices.


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