MBS Live Recap: Bonds Hold Ground With Help From Stocks and 30yr Auction

To be fair to bond markets, they might not have needed much help to hold their ground today had it not been for the stronger economic data in the morning.  It used to be the case (many years ago now) that Jobless Claims data was a cornerstone of Thursday morning market movement potential.  These days, it's barely worth mentioning except inasmuch to confirm that claims remain near the lowest levels in more than a decade.

The more damaging data (as far as bonds are concerned) came in the form of the Producer Price Index (PPI) this morning.  Prices rose both at the headline and the core levels (the "core" strips out food and energy from the calculation and is thought to be the more stable, more informative number).  

The year-over-year core PPI reading stood at +1.9 vs a median forecast of +1.7 and a previous reading of +1.6.  When you consider that the Fed has historically regarded 2.0% as an ideal and healthy annual core inflation number, there's a fairly big difference between 1.6 and 1.9%.  Bonds sold off on the news, but soon found help from sharply weaker stock prices at the 930am NYSE open.  

The afternoon's 30yr Treasury auction was fairly weak, but turned out to be of little consequence.  Traders were just as happy to be done with this week's slate of Treasury auctions.  Yields drifted toward the lows of the day by the close.  Fannie 3.5 MBS ended the day up 2/32nds at 102-07.