What inflation? That is what the bond market is continuous to say to date this week

Treasuries are keeping strongly bid so far this week and we’re seeing some key levels being challenged. 10-year yields are down to their lowest since June last year, down to 3.61% currently. Meanwhile, 2-year yields are down to their lowest in almost two years as it falls by nearly 5 bps today to 3.56% now:

Are traders severely underestimating inflation risks here? Or are they right in saying that inflation isn’t even a factor anymore at the moment?

In that lieu, 10-year breakevens have even dropped to 2.03% – its lowest since the start of 2021 (h/t @ lisaabramowicz1).

And all of this is coming just before the next US CPI report later today at 1230 GMT. I reckon that says a lot about how the market is positioned and what traders are expecting.

Personally, I don’t see how the inflation numbers today will have any significant bearings on the Fed’s decision next week. But if it solidifies the momentum for yields to continue to push lower, that will have broader market ramifications regardless.

As such, it is definitely something to keep an eye out for especially with the 2-year yields chart above in play.