UMBs opened up 3 bps.  So, basically flat.  S&P futures up 28.5

It’s no secret that a vast majority of bond market movement these days occurs in response to a small handful of economic reports and the Fed’s quarterly updates on the rate hike outlook (via the dot plot).  That means we see several weeks each month without any big ticket market movers. This week arguably qualifies.  But how could that be, considering Friday’s PCE price index is the same one the Fed refers to as its preferred gauge of the 2% inflation target?  PCE just hasn’t caused big reactions for a few reasons (similarity to CPI and predictability due to other data that comes out earlier).

Chicago Fed President Austan Goolsbee said the Fed is on hold as progress on inflation has stalled out. “Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed’s current restrictive monetary policy is appropriate.  He warned about housing being the big problem. “It is supposed to have been falling,” he said, citing the decline in market data on new leases. “If it doesn’t, it will be hard to see a smooth path back to our 2% inflation goal.” Translation: We need to see rents fall in order to start cutting rates.

Lots of new bond supply coming to market this week:

Tuesday – 2 yr auction – $69B

Wednesday – 5 yr auction – $70B (record)

Thursday – 7 yr auction – $44B

Total of $183B

Bank of Japan Governor Ueda also said that if underlying inflation continues to go up, they will likely be raising interest rates.

Monday may as well have been a 3rd weekend day as far as the bond market is concerned.  While equities are preoccupied with earnings, bonds were trading at about HALF their normal clip based on the past 2 weeks of average volume.  There were no relevant economic releases and really not even any interesting market moving headlines.  Buyers pushed back against modest overnight weakness in the AM hours and then drifted mostly sideways in the PM hours.  Days like this only intensify the focus on next week’s important slate of events which include a Treasury refunding announcement, Fed announcement (with likely QT tapering on the agenda) and the jobs report.

UMBS closed up 15 bps at 99.47

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