Today, the bond market is experiencing a rebound from yesterday’s significant reaction to the CPI report, with UMBS opening up 3 basis points. While stocks are also on the rebound, bonds and MBS are holding steady. The latest Consumer Price Index data reveals a 0.3% month-over-month increase in January and a 3.1% year-over-year increase, with shelter costs driving much of the uptick. Core inflation, excluding volatile food and energy prices, rose 0.4% month-over-month and 3.9% year-over-year, maintaining a steady upward trend since the summer. Despite concerns about rising deficits, recent budget data suggests a mildly contractionary fiscal stance, with a significant portion of the deficit increase attributed to rising interest payments. Central banker comments, particularly those emphasizing the transient nature of inflationary pressures, have helped reshape market sentiment, with bonds trending toward lower yields following reassuring statements. Looking ahead, market performance may hinge on forthcoming economic data, with hopes pinned on signs of weaker economic activity to sustain moderate gains.

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