Longer Term Rates Lose Ground Despite Softer Inflation

Today's initial focus was on the big drop in Producer Prices this morning.  Bonds rallied in response, but were subsequently sold in favor of stocks as investors positioned for bank earnings starting on Friday.  Curve trading was also a factor due to PPI's implications for the Fed rate hike outlook (i.e. 2yr Treasuries were roughly unchanged while 10yr Treasuries were 5bps higher in yield). The presence of long-end Treasury auctions likely didn't help.  All that having been said, volatility has been very light in the bigger picture so far this week.  Traders continue to wait for a more cohesive message from economic data before picking a side.

Econ Data / Events
    • Core m/m Producer Prices 
      • -0.1 vs 0.3 f'cast, 0.2 prev
      • Last month revised up from 0.0
    • Core y/y Producer Prices
      • 3.4 vs 3.4 f'cast, 4.8 prev
    • Jobless Claims
      • 239 vs 232 f'cast, 228 prev
Market Movement Recap
08:39 AM

Mostly sideways in Asia. Choppy and slightly weaker in Europe (but in a narrow range).  Slightly weaker to start US session, but gaining some ground after weaker econ data.  10yr up only .7bps at 3.405.  MBS down 2 ticks (0.06), but could be in positive territory if liquidity were better.

01:02 PM

Flat for the past several hours and little-changed after the 30yr bond auction.  MBS up 3 ticks (0.09) and 10yr yields up 1.3bps at 3.413.  

04:30 PM

Weakest levels of the day just after 2pm, but recovering a bit since then.  MBS down 3 ticks (0.09) and 10yr yields up 4.9bps at 3.449.