Treasury Counselor David Zervos: Energy shock, not sticky inflation, driving yields

The Treasury market's recent resilience suggests that interest rate yields may have peaked despite warmer-than-expected inflation data and geopolitical volatility. David Zervos, counselor in the office of the Secretary of the Treasury, argues that current inflationary pressures are primarily an energy-driven story rather than a sign of systemic overheating. While core CPI and PPI figures showed slight increases, the broader trend in trimmed-mean inflation remains downward, hovering near 2%. The market has successfully absorbed a significant shift from projected rate cuts to hikes, alongside an 80% surge in West Texas Intermediate oil prices, without losing its record-breaking momentum. A potential return to $60 oil as global conflicts resolve could eliminate the primary drivers of current rate anxiety, eventually paving the way for significantly lower yields.