Unfortunate, But Logical Reaction to Much Hotter Core Inflation
Markets had been waiting on today’s CPI report for quite a while–weeks at least. It was one of the last shoes to drop before the Fed announcement on September 21st, and it arrived at a time where the market had fully priced in a 75bp hike, but was willing to consider something even higher if the data was convincing. This was arguably convincing enough for the Fed to at least open the conversation. Fed Funds Futures agreed. As expected, shorter-dated Treasuries got hit the hardest and longer-term bonds outperformed (the 30yr Treasury actually made modest gains). But MBS lost more than half a point very early in the day and–due to the well understood implications of the data–didn’t have much to do after that.
Econ Data / Events
Monthly CORE CPI
0.6 vs 0.3 f’cast, 0.3 prev
0.1 vs -0.1 f’cast, 0.0 prev
6.3 vs 6.1 f’cast
8.3 vs 8.1 f’cast
Market Movement Recap
08:56 AM Bonds understandably reeling after sharply stronger CPI data. MBS down 3/8ths on the day and roughly 3/4ths from the AM highs. 10yr yields are up 5bps on the day and 10bps from the AM lows.
10:43 AM Weakness increased until just before the 9:30am NYSE open. Holding ground since then with 10yr yields up 7+bps at 3.43% and MBS down nearly half a point.
01:03 PM Strong 30yr bond auction reinforces and speaks too additional curve inversion (i.e. love for long term rates, while short term rates are shunned). 30yr turned green on the day. 10yr up “only 6.6bps” at 3.42. MBS still down half a point (MBS = shorter duration than 10s or 30s).
03:29 PM Very flat afternoon for bonds–especially MBS. Not surprising considering CPI was the only game in town. No major change to the trading levels from the last update.