Have the US yields finally peaked?

Yesterday, the US CPI report showed once again that the disinflationary momentum has clearly slowed but nonetheless it remains intact. This should alleviate the fears around a second inflationary wave or new rate hikes.

The Fed continues to reiterate that its policy setting is restrictive and looking at the yield curve and the real yields that’s technically correct.

So, what could be the reasons for new cycle highs in US yields when the only option we have at the moment is the Fed keeping interest rates higher for longer?

As I see it, the risk now is skewed to the downside. We’ve been seeing signs of a slowdown in the activity data recently. Unless the Fed re-pivots in the near future (and I don’t see them doing this mistake again), we might return to the same point of last year end when inflation was gradually coming down and financial conditions remained generally tight.

This time though, the risks of an economic slowdown are higher…

Looking at daily chart, we can see that we broke out of the rising channel yesterday, which might end up being a bearish flag with the measured target standing around 3.25%. What could take us there? Well, the most obvious answer would be a deteriorating labour market. We have the US jobless claims coming up at the bottom of the hour and another big miss might be the start of a sustained downtrend.

This article was written by Giuseppe Dellamotta at www.forexlive.com.