CPI Can Give Fed ‘Easy Out’ on a Rate Hike, BMO’s Davis Says

Watch on YouTube ↗  |  September 08, 2026 at 13:26  |  1:59  |  Bloomberg Markets
Speakers
Earl Davis — Head of Fixed Income, BMO Global Asset Management

Summary

Earl Davis discusses the upcoming CPI print and its implications for Federal Reserve policy and fixed-income positioning. He argues a hotter CPI gives the Fed cover to hike, while a weak surprise could force short covering in duration with 30-year yields watching 5.15%. He also sees mortgage convexity selling as a key supply risk and views 10-year Treasury yields at 5.00%-5.25% as a larger buy.

  • A higher-than-consensus CPI print gives the Fed an easy out to hike because markets already discount it.
  • BMO is positioned short US Treasury duration into the CPI release.
  • The key downside trigger for 30-year Treasury yields is 5.15%; a close below could stop out shorts and flip positioning long.
  • Mortgage convexity hedgers are the last major sellers, with 7.25% 30-year mortgage rates threatening accelerated duration selling.
  • Dealer liquidity is seen as insufficient to absorb a violent convexity-driven duration selloff.
  • BMO sees 10-year Treasury yields at 5.00%-5.25% as a larger buy because rates probably will not stay there long.
Ideas
Earl Davis Head of Fixed Income, BMO Global Asset Management 0:06
Higher CPI lets Fed hike; short duration.
A higher-than-consensus CPI print gives the Fed cover to hike because the market has already discounted it; this supports being short US Treasury duration, and BMO is positioned short duration.
US Treasury duration MED
Earl Davis Head of Fixed Income, BMO Global Asset Management 0:40
30-year yield 5.15% triggers flip long.
There are large short duration positions; if Friday's CPI surprises weaker, the 30-year Treasury yield could fall toward 5.15%. A close below 5.15% would trigger short covering, and BMO would stop out of shorts and likely go long duration for a bit.
US 30-year Treasury yields HIGH
Earl Davis Head of Fixed Income, BMO Global Asset Management 1:01
Mortgage convexity sellers may pressure long duration.
Mortgage convexity hedgers are the only significant seller left in the bond market; if 30-year mortgage rates rise from 6.75% toward 7.25%, they could significantly accelerate duration selling, pressuring long-duration rates.
US long-duration Treasuries MED
Earl Davis Head of Fixed Income, BMO Global Asset Management 1:48
Buy 10-year Treasuries at 5-5.25%.
A mortgage convexity-driven selloff could push 10-year Treasury yields to 5.00%-5.25%, but BMO sees that as an even larger buy because rates are unlikely to stay in that range for long.
IEF HIGH
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This Bloomberg Markets video, published September 08, 2026, features Earl Davis discussing US Treasury duration, US 30-year Treasury yields, US long-duration Treasuries, IEF. 4 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Earl Davis  · Tickers: US Treasury duration, US 30-year Treasury yields, US long-duration Treasuries, IEF