[DanRath]

US Retail Sales disappointed in general, as it appears that much of the boost for the auto industry from the ‘cash for clunkers’ progam came at the expense of other spending. The focus will be on the US CPI release. The vast amount of the US yield increase over the past months can be explained by rising inflation expectations as derived via the Tips markets. There seems to be as well a risk premium in bond markets. The inflation related part of this risk premium may be reduced via the release of today’s CPI. It does not make sense to see inflation expectations rising at the same time while there are historically wide output gaps. Hence, bond yields should decline further. A declining USDJPY could spark a domino effect via JPY crosses moving currencies such as the EUR lower.