The inflation data released by the US today is almost a secondary factor in the trend of long-term US debt. The market predicted a 3.4% year-on-year increase in consumer prices last month, but even if the data falls short of expectations — albeit a lagging indicator — it is difficult to make bond traders optimistic. Diesel prices topped $6 per gallon for the first time in history, which will dominate market discussions surrounding the Federal Reserve's policy actions next week. Federal funds rate futures show that the probability that the Federal Reserve will raise interest rates on September 16 is about two-thirds. If the Federal Reserve chooses not to raise interest rates, the market will be more convinced that it will be difficult for policymakers to achieve their inflation control goals. Accordingly, traders will require higher inflation risk premiums before they are willing to hold long-term bonds to push 10-year US bond yields above 5%. If oil prices do not fall significantly, this situation is more likely to occur.

The inflation data released by the US today is almost a secondary factor in the trend of long-term US debt. The market predicted a 3.4% year-on-year increase in consumer prices last month, but even if the data falls short of expectations — albeit a lagging indicator — it is difficult to make bond traders optimistic. Diesel prices topped $6 per gallon for the first time in history, which will dominate market discussions surrounding the Federal Reserve's policy actions next week. Federal funds rate futures show that the probability that the Federal Reserve will raise interest rates on September 16 is about two-thirds. If the Federal Reserve chooses not to raise interest rates, the market will be more convinced that it will be difficult for policymakers to achieve their inflation control goals. Corresponsibly, traders will require higher inflation risk premiums before they are willing to hold long-term bonds to push 10-year US bond yields above 5%. If oil prices do not fall significantly, this situation is more likely to occur.