Over the past month, treasury prices (and the Japanese yen) tumbled in what seemed like a relentless daily rout, one which pushed the 2Y to the highest level since 2007, well above 5% while 10Y yields jumped back over 4% for the first time since the March bank crisis amid a sharp repricing in rate hike expectations that wiped out any rate cuts from the near- and medium-term calendar. And then everything reversed, with yields sliding this week, especially after Monday's surprising news from the Manheim Used Vehicle report which found a near record drop in used car prices (and a record drop for the month of June).
It was this surprise plunge in used car prices that prompted banks such as Goldman and JPM to warn that we may get an unexpectedly weak print from tomorrow's closely watched CPI report. First, in its CPI preview, JPM wrote that "we expect the decline in Manheim Index to be reflected in the Used Car CPI in the coming months... Used Cars CPI will decline 5.7% in Sep. Given that used cars represent 12% of the Core Goods (3.35% of overall CPI), this could add to the disinflationary impulse in near-term." Goldman echoed this sentiment, adding that "we expect a 1.2% decline in used car prices and a 0.2% decline in new car prices in June, reflecting lower used-car auction prices and continued increases in auto dealer promotional incentives." While we will have more to add in our full CPI preview later today, the point is that while the BLS is still reporting sharply higher car prices, the real-time price environment is clearly lower, similar to housing in late 2022, and is why JPM said that "yesterday’s Manheim Used Vehicle print was interesting and also highlights the divergence between real-time and official inflation metrics."
