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Rates Decline on Turkish Crisis

A relatively stable week in the U.S. fixed income markets was dashed on Friday, as Turkey's economic crisis deepened, leading to safe haven flows into the safety of the Treasury market.  The Turkish lira declined precipitously as President Trump announced additional sanctions against the country.  The poor relations between the two countries (partially owing to the detention of an American pastor in Turkey) threatens to have a wider impact as European banks are very exposed to Turkey.  Yields were lower by 3-6 bps across the curve as a result. 

The week's economic releases were highlighted by Friday's CPI report, which indicated that July consumer prices rose by 2.9% on an annualized basis - the highest such reading in ten years.  Even excluding the volatile food and fuel components, prices still rose by 2.4%.  The increase is concerning as wage gains have not kept pace with this level of inflation, reducing U.S. consumers' real purchasing power.

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