Inflation Focus Next Week, Expect Flattening Following Solid Jobs Report, BMO Says


BMO expects inflation to be the focal point with core-CPI crucial in setting the tone for Treasuries next week. The bank is content to see the flattening trade reemerge following the employment report, however, remain skeptical it’s anything beyond a technical trade as 2/10Y at 20 basis points proved near-term unsustainable. Supply next week includes reopened 10s and 30s. The first long bond offering since the beginning of the Japanese fiscal year will serve as a gauge of foreign investor sentiment.

Strong sponsorship could presage an additional flattening impulse to come as FOMC members remain relatively resolute in their desire to stay on hold and discern which direction the economic winds end up pointing after the consequential past few months. This leaves it to remain in the prevailing range in 2/10Y between roughly 9 and 20 basis points. A breakout in either direction would have technical momentum, as well as presumably some fundamental backing that would have been the initial catalyst for the range break in the first place.