Bonds Rally After CPI Gives Fed The Week Off

Today's Consumer Price Index (CPI) was one of the only big ticket economic reports left before next week's Fed announcement, and perhaps the only one that could have meaningfully impacted the Fed's decision-making process.  By coming in tamer than expected (and with several notable sectors such as used autos being down 1.5%), today's result effectively tells the Fed it can take next week off.  Had today's report been significantly stronger than expected, markets may have panicked for fear that the Fed could announce some measure of reduction in its rate-friendly policies.

Econ Data / Events

  • Fed MBS Buying 10am, 1130am, 1pm

  • Core CPI (y/y) 4.0 vs 4.2 f'cast, 4.3 prev

Market Movement Recap
08:41 AM

Slightly weaker overnight with 10yr as high as 1.35 this morning.  Quick, small recovery after CPI data, but stalling/reversing now.  10yr nearly hit 1.33, now up to 1.345 (+1.7 bps on the day).  MBS down 2 ticks (0.06) at 101-05 (101.16).

09:46 AM

The rally is back on and yields are now near new lows for the day, down 2.2bps at 1.304.  MBS are now up an eighth of a point after being slightly weaker earlier this morning.

02:54 PM

Very quiet after the AM snowball rally.  10yr yields have been down in the 1.28% neighborhood since then, currently -4.7bps on the day at 1.279.  MBS are up nearly a quarter point and have also been flat since 10am.