MBS Live Recap: Slightly Stronger, Fairly Quiet Day. CPI Sets Tone Tomorrow

Bond markets were slightly weaker to start the session, but soon found some support from a European bond market rally. Even after the European close, the tone remained supportive in the domestic session.  There wasn't the characteristic weakness in the run up to the 10yr Treasury auction.  And the auction itself was fairly strong.

The caveat to all of the the above is that volume and participation were much lighter than normal (2nd quietest day of the year so far).  That point was driven home by the bigger moves at 2pm--something we only tend to see on quieter days as it's a peak time of day for short-term trades to be closed out.  That 2pm-3pm trading impact tends to get lost in the shuffle on busier day, but it inspired the biggest shifts in prices and yields today.

In terms of bond markets reacting to data and events, tomorrow should be "business as usual" to a much higher degree.  The key event--or rather, the event with the biggest potential reaction--is the 8:30am release of the Consumer Price Index (CPI).  The median forecast call for core CPI to remain unchanged on an annual basis (1.8%).  Based on recent examples, a mere 0.1% in one direction or the other could have a noticeable effect on bonds for better or worse.