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Inflation Concerns Send Yields Higher

A rally in commodity prices stoked fears of inflation this week, sending the yield on the 10-year Treasury within 2 bps of its highest levels this year.  The reasons for the run-up in prices are varied, but the impacts of sanctions, tariffs, and  tight oil supplies are the predominant factors cited by market participants.  Oil, which was near $45/barrel last summer, is now approaching $70/barrel while aluminum has rocketed more than 30% higher just this month. 

The week's economic indicators were largely positive, with March's housing starts and building permits outpacing expectations.  March retail sales also rose while weekly jobless claims continued to remain subdued.  The yield curve re-steepened slightly this week due to the increase in longer term yields, with the spread between the two- and ten-year Treasury notes climbing to 49 bps (which, despite the increase, is still notably low).

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