MBS Live Day Ahead: Attention Turns to Auctions and Inflation Metrics

The week gets off to a slow start without any significant data on tap for Monday or Tuesday.  The Treasury auction cycle becomes more relevant on Wednesday with a record high dollar amount of 10yr notes hitting the market at 1pm ET.  Earlier that morning, core consumer prices (inflation) are expected to come in at 2.3% for april after a 1.6% reading last month.  This is a sign of the times as the uptick in inflation (the one the Fed hopes is "transitory") is being seen on several fronts now, not the least of which being market-based inflation expectations at the highest levels in 8-10 years.

With visible price surges in several sectors, it's no surprise to see inflation expectations rising.  The biggest question remains: how sustainable will this be and what sort of core inflation metrics will it deliver?  The combination of those uncertainties and an ever present glut of Treasury supply could easily prevent significant progress toward lower yields and further relegate Friday's breakout to "one-off" status.  The counterpoint is that Friday's jobs numbers will have investors on the lookout for additional signs of the recovery's potential fragility.