US consumer prices advanced at a brisk pace for a second month in September, underscoring the Federal Reserve’s intent to keep interest rates higher for longer. Core consumer price index, which excludes food and energy costs, increased 0.3% last month. Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI, that measure climbed 0.4%, boosted by energy costs. It’s unclear whether this will tilt the central bank toward another rate hike this year — especially given a recent surge in bond yields that some officials say may be a substitute for more policy tightening. At the very least it supports policymakers’ desire to keep borrowing costs elevated for some time. Treasury yields rose, while the S&P 500 index futures pared gains and the dollar appreciated. Traders still price in about a 40% probability of one more quarter-point increase this year.
Funding activity slowed a bit to begin the holiday shortened week in the wake of a bond market rally, liquidity further out the curve appeared lighter as inversion expanded and higher front-end rates seemed to be more attractive to investors. As of this morning program or money center banks have started to widen offering on tenors past 3yrs looking to increase demand.
Callable CD structures that allow for duration extension while retaining valuable balance sheet flexibility through the call provision are proving to be more and more attractive.