Bond Market Insights Fri, 15 Aug 2025

Mixed signals on U.S. inflation. The softer than expected CPI boosted bets on rate cuts, but PPI brought some sanity back. Analyst opinions are stretched. Goldman upped its call for a 50bps cut in September, followed by 25bps in both October and December while Morgan Stanley is expecting no cuts this year, citing the dual mandate, keeping both inflation and unemployment low. The unemployment rate is low, the inflation rate is not.  Core inflation has been above the Fed’s target for more than a year and, according to this week’s data, it started to tick up again.

The July Producer Price Index rose 0.9% month-on-month, more than four times the median forecast. Services prices climbed 1.1%, their largest increase since 2022, while goods prices reached their highest level since January 2023.

Following PPI, 2yr yields galloped 8bps higher to 3.74%, 5y to 3.82% from 3.725%. The curve quickly flattened another 2-3 bps after already embarked on a flattening course.

The long end outperformed following some push back from Fed’s Daly on Bessent’s recent comment for a 50bp cut in September.  Musalem later echoed Daly citing inflation around 3% and commenting that tariff pass through could take 3-6 months but also be more persistent.

Repo rates held at upper end of range as the market absorbed another $42bn in new Bill supply; RRP usage was down by $25bn at $29bn, the lowest since April 2021.

U.S. equities were little despite the inflation surprise. The S&P 500 closed at 6,468, the Dow Jones Industrial Average at 44,911, and the Nasdaq 100 at 23,832. Gains were supported by corporate headlines. with reports that the Trump administration is considering taking a stake in Intel as a security measure to boost their semiconductor manufacturing, a caveat was supplied by the Whitehouse staff, saying that the discussion was “hypothetical."

China’s bond markets continued to come under pressure. Ultra long bond futures fell to a four-month low as domestic equities rallied, supported by loose liquidity and optimism over measures to address industrial overcapacity. Expectations for near-term policy easing from the PBOC have faded, and a new tax on certain bond investments has weighed further on sentiment.

India was upgraded by S&P to BBB, on par with Indonesia. The agency noted the country’s wider resilience to US tariffs, stating that 60% of consumption is domestic.

The sovereign upgrade should also result in same for SOEs  such as EXIMBK, INRCIN, ONGCIN and NTPCIN, while privately owned enterprises such as Adani Ports and Bharti Airtel,  which are capped by sovereign, should also follow suit. India IG and HY USD bonds are trading strong post upgrade with HY bonds up 0.5 to 1.5pts.

Digital assets remain elevated but have eased slightly from recent highs. Bitcoin is trading around $118,300 after briefly touching $124,000, while Ethereum is near $4,557. Treasury Secretary Scott Bessent confirmed that the government will not buy additional bitcoin for the Strategic Bitcoin Reserve, currently valued between $15 billion and $20 billion, though seized assets will continue to be held. Corporate holdings remain in focus, with SpaceX reportedly owning more than $1 billion worth of bitcoin.

Today we have a busy data schedule, with Empire Manufacturing, Michigan Sentiment indices and retail sales. Sentiment indicators are treated as leading indicators, so as the market absorbs yesterday’s PPI number they are worth watching. Saying that the retail bid, that is prevalent in all markets, is FOMO driven and believes in the interventionist Trump Plan.