MBS up 8 bps, improving .10 while writing this.  The 10y down 7 early.

Bonds were lower in the overnight session.   Traders were clearly expecting a “whisper number” that was lower than the median forecast.  Simply by coming in as expected, CPI managed to disappoint the market (this also ups the odds for a bounce back after this initial leg of selling).

• monthly headline CPI=  -0.1 vs 0.0 f’cast, 0.1 prev
• monthly core CPI=  0.3 vs 0.3 f’cast, 0.3 prev

The news this morning is the CPI data release. It first appeared that someone had the data early with the market rallying ahead of the release, but then the data came in right on the screws. Pretty much every reading matched the Bloomberg survey estimate .  There has been some healthy chatter this morning in Chris Maloney’s anonymous Bloomberg chat following the release. The market is pretty messed up and there is a lot of uncertainty about how the Fed will handle rate raises going forward.

If you take the last 2 readings and extrapolate it out for 12 mos – the run rate would be 1.6% on the headline and core would be 3%. Though that would still be increasing prices along the way and establishing very high levels. Without Deflation (bad) they will just stay HIGH.

Energy Fell 4.5% MoM. Gas fell 9% and is down 15% YoY. Food climbed .3% MoM and 10.4% YoY.

Yesterday’s 10y auction was pretty good.

30yr bond auction

• 3.585% vs 3.610% f’cast
• Bid to cover 2.45x vs 2.36x avg

Bonds were already rallying over the past 3 hours, but the auction results are kicking things into just slightly higher gear.

You won’t see too many days with a 10+ bp rally in 10yr yields in response to an economic report coming out right in line with expectations.  But that’s more or less what happened today.

Wall Street looked past its initial disappointment with a just in-line consumer price index to focus on the idea that an inflation peak is possibly in the rear view.  That perception is visible in the swap market, which is showing less than 50 basis points of tightening priced in for the next two Fed gatherings — a small chance of no move at all in March.  None of that means, of course, the Fed will soon declare victory over inflation.