US Treasuries were under pressure in the initial part of the trading session as inflation numbers came in hotter than expected (headline: 0.7% MoM sa, core: 0.3% MoM). Energy was the single largest contributor to inflation, registering a 5.2% MoM increase. However, the broadening out of price pressures unto the other components is a bit of a concern. Shelter prices do not seem to be falling anymore. Non-shelter services inflation also appears to be somewhat sticky. Against this backdrop, the market has dialled up the odds of an October hike close to 34% while seeing a terminal FFR rate of 4.75% in this cycle.
While the sell-off in USTs was sharp in response to the CPI beat, the move was largely unwound by the end of the trading session. We continue to think that yields at current levels offer decent value. Notably, yields across the tenors did not push above their respective recent highs. Selling exhaustion is probably still very much in play for now. Moreover, we are not convinced that the Fed will have to deliver back-to-back hikes on the back of one set of CPI numbers. From a cross-asset perspective, we note the strong negative reaction in US equities when bond yields spike. Yields at current levels are definitely high enough to hurt and investors remain jittery. US Treasuries will probably provide some protection in the event that sentiment turns awry. 
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