Bond Prices Go Drip, Drip, Drip

The 10-year US Treasury bond yield rose above 4.00% at the beginning of August on better-than-expected economic data. It rose above last year's peak of 4.25% today, trading most recently at 4.32%, following the release yesterday of July's FOMC minutes, which strongly suggested that solid economic growth might keep inflation above the Fed's 2.0% target unless the Fed continues to raise interest rates.

In our opinion, the Fed is risking overkill since headline and core CPI inflation rates excluding shelter (on a y/y basis) fell to 2.0% and 2.5% in July (chart). Shelter inflation will undoubtedly be falling in coming months. Meanwhile, still higher commercial mortgage rates would undoubtedly increase defaults, and weigh on the banking industry.