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The month on month % CPI print today in the US came in at 0.3% ex food and energy. This was higher than the 0.2% expected. Markets partially retraced the previous day's dovish response to Fed minutes and once again project a decent chance of Fed funds hitting 5.50% in Jun06.

Later this week we have Existing Home Sales data in the US which could see markets swing back once more to the doves. The key question now is whether this firm CPI print is a blip or the start of a sustained pick up in inflation? The jury is still out but once the inflation cat is out of the bag expect the Fed to respond with further tightening.

In terms of trading strategy I recommend being long long-dated yields. An inflation fighting Fed should see further rate hikes shifting the whole curve to higher yields. If, however, the Fed takes it's foot off the pedal expect long yields to rise anyhow as markets will fear a Fed complacent about inflation.

10 year yields currently at 5.04% and should head towards 5.50%.

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