US consumer price index (CPI) inflation fell to 6.5% in December – from 6.6% in November. Markets responded positively, pulling rates down across the curve. Issuers may want to take advantage of this positive market sentiment – as the future path of inflation may be more uncertain than the market is pricing.

Core inflation (excluding energy and food) rose to 5.7% in December – from 5.4% in November. It is possible that the headline rate is misleading because it is driven by energy costs that will not feed into other components of inflation. If that happens, there are risks that: 1) the Fed raises more than the market expects, and rates rise, or 2) the Fed mistakenly slows or pauses rate increases, inflation accelerates, and then the Fed has to raise even more aggressively once that happens.