UMBS opened up 14 bps after the first hour of trading.  S&P futures pretty flat.

Core m/m PPI = 0.5 vs 0.2 f’cast

last month revised to -0.1 from +0.2

Annual core PPI = 2.4 vs 2.4 f’cast/prev

This is an odd report when it comes to reconciling the big miss in the monthly numbers versus the on-target annual numbers.  The key is in the revision to the previous month, which perfectly matches the discrepancy in the current month.  In other words, the difference between -0.1 and +0.2 (March’s revision) is the same as the forecast miss for today’s April numbers (0.5 vs 0.2).

All that having been said, the more recent inflation is more troubling in terms of implications for CPI and other data.  As such, yields jumped quickly into negative territory, even though they bounced back slightly since the initial spike.

The Producer Price Index (PPI) isn’t in the same league as CPI when it comes to market movement potential, but as seen again this morning, it’s no slouch.  Bonds responded immediately and somewhat forcefully to the much higher monthly core number.  10yr yields jumped an instant 5bps and MBS dropped 6 ticks (.19).

The New York Fed released its survey of consumer inflation expectations, which showed short-term inflationary expectations rose to 3.3% from 3.0%. On the positive side, we remain below the 3.5% trailing 12 month average. Inflationary expectations are falling, however we remain above the Fed’s target.

Inflationary expectations are a critical portion of the inflation problem, and the Fed will be reluctant to start cutting rates when expectations are rising.

Small Business Optimism improved in April, according to the NFIB. Confidence rose 1.2%, which was the first increase this year, however we are still below the long-term average for the index.

Meme stocks are back!  Shares of GameStop jumped Tuesday, extending the meme stock rally started by the first online post from “Roaring Kitty” in three years. Shares of video game retailer GameStop traded 70% higher before being paused, following a 74% advance on Monday. GME to the moon.

If you only had 1 day per month to allocate to watching the bond market and getting a sense of rate momentum, Wednesday, May 15th would be that day.  Last month would have been April 10th.  And here’s the rest of the list:  In other words, it has been and continues to be all about CPI.  Today’s PPI appetizer left the bond market hungry for the main course.  A big miss was offset by revisions and a favorable distribution of internal components.  Wednesday is anyone’s guess in terms of directionality.  All we know is that the size of the potential reaction is as big as it gets when it comes to scheduled economic data.

UMBS ended the day up 24 bps at 100.39

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