What's Up With Wild Reaction to CPI?

For the level of anticipation heading into it, today's CPI release was actually rather disappointing.  Core month-over-month numbers came in right in line with forecasts.  Unrounded numbers were a tad high, and some internals caused concern about persistently moderate inflation (specifically, shelter). So it wasn't a huge surprise to see a negative reaction at first.  Bonds recovered modestly, led by the front end of the yield curve as the long end still had an auction to get through.  After the auction, longer-term bonds caught up somewhat, possibly with help from Fed comments, geopolitical headlines, and a large block trade at the CME.  Ultimately, 10s remained in this week's same old range, which is a pretty uneventful result on CPI day.

Econ Data / Events
    • M/M Core CPI
      • 0.3 vs 0.3 f'cast, 0.3 prev
    • Y/Y Core CPI
      • 3.9 vs 3.8 f'cast, 4.0 prev
    • Jobless Claims
      • 202k vs 210k f'cast, 203k prev
Market Movement Recap
08:41 AM

Weaker after CPI, 10yr up 1bp at 4.042.  MBS down 7 ticks (.23).

11:35 AM

Decent recovery after initial weakness.  MBS up 3 ticks (0.09).  10yr underperforming, up 1.1bps at 4.043.

01:41 PM

No major reaction to Treasury auction.  MBS up 5 ticks (.16) and 10yr perfectly unchanged at 4.032.

02:33 PM

Very big block trade in 5s just after 2pm added fuel to the bounce back.  10yr down 4.2bps at 3.99.  MBS up 9 ticks (.28).

04:10 PM

Holding the gains.  10yr down 4.7bps at 3.985.  MBS up just over 3/8ths.