What's Up With The Paradoxical Post-CPI Rally?

What's Up With The Paradoxical Post-CPI Rally?

The bond market stared down today's month-over-month core CPI reading (0.3% vs 0.2% forecast) and after sweating for a bit, decided it wasn't threatening enough to change the narrative. There was a heavy dose of initial volume, but after yields popped to the highest levels in several weeks, buyers were accounting for more of that volume.  If we attempt to explain that buying with internal components of the report, we're forced to lean fairly heavily on the drop in shelter inflation.  Excluding shelter, core services inflation actually rose in a way that suggests the fight is not yet over.  As such, we're forced to conclude the market was simply braced for more of a spillover from August's fuel price spike.