Employment/inflation: a cocktail to watch

Editorial With the release of US inflation figures approaching, the market is still fearing a sharp rise in consumer prices in May to 4.6% YoY. Does this mean that we should fear strong pressure on long-term interest rates? The latest inflation figure for April at 4.2% had no major impact on Treasuries; at this stage, job numbers are more important for the Fed. The latest figure for April was disappointing and this limited the reaction of Treasuries to the April inflation figure. The sooner employment improves, the sooner the Fed will begin its monetary normalisation . So everything will depend on the combination of employment and inflation. The most negative cocktail for the bond markets would be employment improving significantly in May, followed a few days later by the publication of higher-than-expected inflation in the same month.