Best Levels in Months After Much Higher CPI Data (No, Really!)

If you'd told someone that core annual CPI would come in 0.4% higher than expected at a staggering 3.8%, but that Treasuries would rally to the best levels in over 3 months, people just might think you're crazy.  Crazy was the reality today.  After a token sell-off in the 20 minutes following the CPI data, bond traders only had 2 buttons to push, and they both said "buy!"  Some of the buying was outright, but we'd attribute most of the momentum to short-covering.  That carries some implications for lock/float strategy in the coming days, and today's video discusses those in detail.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • CPI (m/m) 0.6 vs 0.4 f'cast, 0.8 prev

  • Core Annual CPI 3.8 vs 3.4 f'cast, 3.0 prev

  • Jobless Claims 376k vs 370k f'cast, 405k prev

Market Movement Recap
08:43 AM

Logical weakness following much hotter core inflation (3.8% y/y this time vs 3.0% last time, 0.4% higher than expected).  10yr yields now up 3.4bps at 1.526 and 2.0 UMBS down a quarter of a point.

10:48 AM

Impressive and relatively quick recovery with some help from ECB press conference.  10yr yield back to unchanged and MBS still down an eighth (but up from the earlier losses of a quarter point).

01:15 PM

Decent 30yr bond auction considering yields were falling in the past few hours.  The absence of any major reaction only further confirms recent bullish leanings.  10yr yields down 2bps at 1.472 and UMBS 2.0 coupons now UP 2 ticks (0.06) on the day at 101-14 (101.44).

02:58 PM

More time, more gains.  The "sell" button is officially broken for bond traders since 9am.  10yr yields are crossing the 3pm finishing line just under 1.46%.  UMBS 2.0 coupons are up an eighth.  Stocks are up half a percent as well.