Up is down, old is new, green is red, etc. Here we are with a second straight day with inflation data coming in significantly lower than forecast and the second straight day with bonds paradoxically weakening. Today’s version is a bit different. Yesterday began with a decent, logical head start into positive territory. Yields were much closer to unchanged this morning and didn’t have any sort of rally in response to the PPI miss. As for rationale, we’ll have to talk about things we otherwise wouldn’t talk about if bonds were rallying. In other words, this is one of those times where we have to go hunting for a narrative to fit the trading.
Some of these would have applied anyway. They include things like the Treasury supply environment, corporate issuance, and the technical landscape. On that note, 2.85% merits some vigilance in terms of 10yr yields even though MBS have been outperforming 10s.
Today brings the final Treasury auction of the week at 1pm ET.