Inside Markets — Peak Inflation Fears

Yesterday’s note on the disinflationary implications from April flash PMI and record high real yields have started another branch for the decision tree. Real yields are calculated by subtracting inflation expectations from nominal bond yields.  A decline in real yields from record levels would result from lower nominal yields or higher inflation expectations.  PMI data is often the most consistent leading indicator for business activity, and the uptick in January-March CPI was in the PMI reports that preceded them by ~3 weeks.  The bond market follows official CPI data and Fed messaging more than PMI surveys. It’s too early to know if the disinflationary signal in this week’s April PMIs will translate into CPI disinflation, but a softer print on 5/15 would result in lower nominal yields, making the next few weeks a potential opportunity to add bond duration.