In the great "deflation vs. reflation" battle, reflation scored a minor victory Tuesday, providing a boost to commodities while undermining Treasuries and housing stocks. With major equity averages digesting Monday's big gains, the big story Tuesday was the May consumer price index. CPI was unchanged vs. expectations for a 0.1% decline while the core rate, which excludes food and energy, rose 0.3%. That was its largest gain since August; expectations were for a rise of 0.1%. On a year-over-year basis, headline CPI is up a modest 2.1% and the core rate by just 1.6%, vs. a 37-year low of 1.5% in April. Still, deflation concerns are so heightened that the stronger-than-expected monthly results moved markets, even if most economists believe the deflation dragon remains unslain. Following the CPI report, expectations for a 50-basis-point rate cut next week by the Federal Reserve fell to under 40% from 62% on Monday. In conjunction, the price of the benchmark 10-year Treasury note fell 23/32 to 103 3/32, its yield rising to 3.26% vs. its recent low of 3.11%. Meanwhile, the S&P Homebuilding Index, a proxy for the acutely rate-sensitive group, fell 1.3% despite a stronger-than-expected report on housing starts/permits. In other economic news, industrial production rose 0.1%, the first increase since February, but capacity utilization remained at a 20-year low of 74.3%. A second-straight day of losses for Treasuries had some wondering if the long-awaited, much-anticipated top in bonds has finally arrived. "We have no idea if this is the end of the bond bull run but we do know historical odds certainly do not favor an increased commitment to bonds at these levels," wrote Steve Galbraith, chief domestic strategist at Morgan Stanley. "As with the parabolic move in the Nasdaq three years ago, our sense is everyone understands there is something strange going on in bond land."