WASHINGTON,January 12,2026 – The Treasury Department is set to shift gears this week,resuming net issuance of Treasury bills after a month of reducing cash in the overnight funding market. This means investors should brace for a bit more supply, perhaps influencing short-term interest rates.
Treasury Shifts Course, CPI Data Looms
A change in treasury bill issuance coincides with heightened anticipation for this week’s inflation report.
- Treasury bill issuance will increase this week, ending a month-long period of cash reduction.
- Market expectations point to a Consumer Price Index (CPI) reading above 2.9% this week.
- The gap between short- and long-term Treasury yields is narrowing, potentially signaling fewer future rate cuts from the Federal Reserve.
- A potential snap election in Japan is adding downward pressure on the yen.
This week, the Treasury will pay down approximately $16 billion in bills on January 13, but will then introduce $23.4 billion in new coupon offerings and $4 billion in bills on January 15. Net issuance is expected to continue increasing, and analysts will be closely watching for any renewed pressure on overnight funding rates as the Treasury General Account balance rises toward month-end and ahead of the upcoming quarterly refunding declaration.
Adding to the market’s focus,a key inflation report is due this week. as of Friday, CPI swap prices indicated an expected increase above 2.9%,effectively rounding to 3%. However, this figure is subject to change as the week unfolds.
The market was pricing the zero-coupon CPI swap index value at 324.9487, suggesting a 2.95% increase from the 315.61 level recorded in December 2024. While this is not set in stone, it’s a crucial data point to monitor.CPI had been trending upward, reaching 2.9% in August and 3.0% in September, before a November reading that seemed to deviate from that pattern. As a result, a December CPI figure exceeding the currently anticipated 2.7% isn’t out of the question.
What’s even more striking is how low implied volatility currently is, especially considering we’re still early in earnings season. The index fell below 7, placing it at the very low end of its past range. A significant increase in volatility may be difficult unless one-month implied correlations rebound from their recent lows, seen in July 2024.
Low implied correlation levels frequently enough signal market peaks rather than the start of sustained rallies, as observed in July 2024, January 2025, and October 2025.
