Rates as of 0500 GMT

Market Recap

The shocking rise in the US consumer price index CPI on Friday set the tone for the markets. Last week blue bars the market was predicting a 50 bps hike in September, possibly only 25 bps, but thats now shifted red bars to either 50 bps or maybe even 75 bps. In fact the market now sees a  small 10 chance that the fed funds rate will hit 2.753.0 that month, which would probably be discounting a 75 bps hike in June, another in July, and a 50 bps hike in September. Of course a month ago grey bars the consensus was firmly on 25 bps.

Higher inflation sparked fears of increased tightening and sent interest rates skyrocketing at both ends of the yield curve around the world.

Its kind of surprising though that inflation expectations didnt rise that much despite the overthetop US CPI print, which was above even the highest of the 69 economists forecasts on Bloomberg.

As a result real interest rates nominal rates minus expected inflation rose notably, particularly in the UK.

That didnt help the pound any, though. On the contrary it was the worstperforming currency Friday. I couldnt find any specific UKrelated reason for the move. It looks like it was just following the general riskoff trend, as exemplified by the NASDAQ index.

In any case, given this mornings disappointing UK GDP figure for April, I think a weaker pound was on the cards in any case.

Elsewhere, several Japanese officials Friday expressed concern about the yen,…