Market Commentary 1/13/17

Interest rates rose Friday morning in response to a slightly hotter-than-expected wholesale inflation report, but this early sell-off reversed course as bonds traded better toward the end of the business day. The sell-off was prompted by a .3% increase in the Producer Price Index (PPI), also known as the wholesale inflation number. This was in line with estimates, but still suggests increased inflation. Core PPI, which strips out volatile food and energy, also reported slightly higher inflation numbers. Finally, year-over-year PPI, increased 1.60%.

Bonds remain oversold but technically have been unable to break out above key price points. We continue to advise clients to be cautious and we feel that locking in rates is prudent. Bill Gross, the famed bond manager, recently wrote that the key data point he is watching is the 10-year U.S. Treasury bond. His belief is if the 10-year Treasury rises above 2.60%, then rates will indeed go much higher. If not, the bull market in bonds is still intact.