MBS Live Recap: Tame Inflation and Tillerson Usher Bonds to Week's Best Levels

Bond markets moved to their best levels in more than a week on a combination of tame inflation data and Trump's unexpected announcement of Rex Tillerson's departure from the White House.  

In looking at the inflation data, we could make a case for bonds two ways.  First, today's Consumer Price Index (CPI) was not stronger than expected on any line item unless you want to say that last month's -0.8% change in inflation-adjusted earnings was revised to -0.6.  Second, and perhaps more importantly, the un-rounded number of 0.0151% nearly made for a headline of "0.1% vs 0.2% forecast."  

"Nearly" wasn't worth too terribly much for bond markets, as they didn't rally profoundly right out of the gate.  We can't really know how much of a rally we would have seen, however, because Tillerson's ouster hit the newswires just a few minutes later.  Markets traded that in "risk-off" fashion (sell stocks, buy bonds).  

The gains were short-lived as investors pushed back on the lowest 10yr yields since March 5th.  On the plus side, the weakness never gained too much momentum, and bonds got another shot following a decent 30yr bond auction in the afternoon.  The auction motivated some more curve flattening trades (sell 2yr bonds vs buy/hold 10-30yr bonds), but just as relevant was the stock market weakness that increased into the close (more "risk-off" support for bonds).