MBS Live Day Ahead: Highest Core Inflation in Decades? No Big Deal

Much like the CPI data 2 weeks ago, today's PCE data showed the highest core inflation in decades. In fact, we'd have to go back almost 3 decades when inflation was still in the process of returning to earth after its aberrant spike in the 80s to see anything higher.

And much like 2 weeks ago, the bond market is yawning with disinterest.  If there's a reason for this, it's that insanely high inflation readings are the norm right now and today's particular result fell right in line with the forecast.  Markets are looking ahead to covid-related supply chain disruptions having less of an effect on prices.  That's when we'll see how much of this inflation spike is truly transitory.

Between now and then, markets are more interested in focusing on other big-ticket economic data, such as next week's jobs report.  That's not to say inflation data doesn't matter.  Indeed, it can still have a very big impact--even before supply chain disruptions shake out.  But it's less likely to have those big impacts when it falls perfectly in line with forecasts.  Bottom line: this insanely high number didn't matter because the market is already expecting insanely high numbers.

Bonds will try to calmly find their way to exits for the rest of the day, and escape into the weekend without challenging the current range boundaries at 1.44 or 1.53% in terms of 10yr yields.