2 green days in a row.  I hope I don’t jinx it.  UMBS up 13 bps on the open.

Both the PPI and Jobless Claims numbers are clearly in the “rate friendly” camp.  Bonds are rallying accordingly with 10yr yields down 7+ bps at 4.24+

Month over month core PPI = 0.0 vs 0.3 f’cast,      [0.5 prev]

Year over year core PPI = 2.3 vs 2.4 f’cast,              [2.4 prev]

About 60% of the decline was due to falling gas prices. Ex-food and energy, the index was flat and rose 2.3% on a YOY basis. Both numbers were below expectations.

Jobless Claims = 242k vs 225k f’cast,            [229k prev]

The median home sale price in the US hit a record last week, according to Redfin. The median sale price hit $394,000 which is up 4.4% on a year-over-year basis. Asking prices appear to be leveling off however. The median mortgage payment fell to $2,829 due to falling mortgage rates.

30yr auction = 4.403 vs 4.418 expectations

bid to cover = 2.49x vs 2.41x avg

This was a strong result considering bonds were already near their best levels heading into the auction.

The bond market reacted favorably to this morning’s economic data which consisted of sharply lower producer prices at the core level and sharply higher jobless claims.  But based on the next few hours, traders might say the initial move was an overreaction.  It wasn’t until the 30yr bond auction that Treasury yields were able to break to new lows for the day.

MBS, however, never made that quantum leap for reasons we ponder in today’s recap video.  One of the reasons has to do with the chance that “things are changing” in terms of broad rate momentum, but we can’t really know if this time is different until several months of data confirm the story that’s currently only 2 days old.

If rates are to rally further, it requires an ongoing supply of friendly economic data.  The bar gets higher as rates get lower.  Risk-tolerant floaters can use recently broken floors as new ceilings (aka lock triggers). Defensive clients are focused on risk associated with inbound econ data.  Both sides of the spectrum should continue to consider that it takes several months of cohesive econ data to truly confirm a shift that coincides with a more float-friendly environment.

UMBS closed the day up 13 bps at 100.77

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