Volatility After CPI, But Only Moderate Weakness

Heading into the 4pm hour, MBS are only down 6 ticks (.19) and 10yr yields are only up 6bps, trading just under 4.16.  That means the bond market is hanging on to all of the gains seen from the recent highs through last Tuesday--not a bad showing considering Core CPI came in a 0.4% for the 2nd month in a row (or that 10yr yields shot up to 4.3+ when that previous CPI report came out).  In addition to rounding considerations (0.4 was really only 0.358), the details also showed a welcome drop in the problematic OER from 0.6 to 0.4.  These factors helped bonds temporarily break even earlier this morning.  Subsequent weakness was at least partially attributable to the approaching 10yr Treasury auction.  

Econ Data / Events
    • Core CPI m/m
      • 0.4 vs 0.3 f'cast, 0.4 prev
    • Core y/y CPI
      • 3.8 vs 3.7 f'cast, 3.9 prev
Market Movement Recap
08:48 AM

paradoxical reaction to CPI with 10yr down 0.4bps at 4.094.  MBS up 3 ticks (.09)

09:35 AM

Giving up the gains fairly convincingly now with 10yr up 4.9bps at 4.147 and MBS down 5 ticks (.16).

01:06 PM

Weakest levels after the auction.   10yr up 7.2bps at 4.17.  MBS down a quarter point.

03:47 PM

Off the weakest levels and trading sideways after hours.  MBS down 6 ticks (.19) and 10yr up 6bps at 4.157.