Yesterday, the EU published its CPI and Core CPI for the month of December. Core CPI grew 2.7% YoY and headline CPI grew 2.4%, showing a tick up from November (2.2%). Next Wednesday, the U.S. will publish its inflation numbers, and it wouldn’t be surprising if inflation ticks up as well. Oil has gone up 11% over the last month and that may put pressure on the headline number. Those expectations are already reflected in the market, through the long end of the Treasury curve. The 30 year T-bond yield keeps climbing and it’s right now on its way to 5% as you can see below. Inflation and deficits are weighing on it, and neither of those factors are expected to come down significantly in the short term. And the Treasury curve is used to price everything (credit products, stocks, real estate, etc). The higher the yield, the lower the value of the present value of an asset cash flow. Valuations are going to feel that pressure soon.
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