Takeaway

The presenter argues that the recent relief rally across global rates—which has pushed the U.S. 2-year yield down about 10 basis points despite hot CPI and PPI prints—is fragile and vulnerable to fading. With OIS markets repricing the October 28 FOMC decision from 22% to 45% and back to 30%, the meeting has turned into a coin toss. Persistent energy pressures filtering into both headline and core inflation suggest underlying fundamental and fiscal risks remain unresolved.

What the presenter said

• [00:12] September CPI printed hot, with headline inflation at 3.7% and core inflation at 2.6%.
• [00:23] Inflation remains a sticky problem, driven month-on-month primarily by higher gasoline prices.
• [00:30] Energy pass-through is bleeding into core metrics via higher jet fuel costs lifting airline fares month-on-month.
• [01:04] Heightened uncertainty makes the upcoming FOMC rate decision a potential "coin toss."
• [01:07] Market-implied odds for a Fed rate hike swung from 22% at the start of the week to 45% post-CPI, before easing back to around 30%.
• [01:27] A relief rally is currently underway across sovereign debt, lifting U.S. Treasuries, UK Gilts, and German Bunds.
• [01:30] Haven bids into Treasuries were supported by equities starting on the back foot amid earnings season, AI jitters, and overnight weakness in Korean equities.
• [01:53] The 2-year Treasury yield traded at roughly 4.95% immediately following the CPI print, but has since fallen about 10 basis points despite a hotter PPI print today.
• [02:05] The presenter cautions that this bond relief rally may fade once markets re-examine unchanged macro fundamentals.

Trade ideas

None stated. The presenter does not put forward an actionable trade structure. The overarching market view is that the ongoing safe-haven bid and yield compression in Treasuries diverge from persistent inflation data and are susceptible to fading ahead of the FOMC meeting.

Levels and data cited

• USGG2YR (U.S. 2-Year Yield): "4.95%" immediately post-CPI; has since "fallen about 10 basis points."
• September Headline CPI: 3.7%.
• September Core CPI: 2.6%.
• OIS Fed Hike Probability: 22% (start of week) → 45% (post-CPI) → 30% (current).
• PPI: Reported as "hotter" today.

Risks and what would invalidate this

• The bond relief rally is at risk of fading if markets refocus on underlying fundamentals that remain unchanged, namely persistent inflation, ongoing fiscal concerns, and broader global growth risks.