MBS down 12 bps to start the week. Stocks down 30 points.

Yields dropped modestly last night as Treasury trading got underway in Tokyo, but then held almost perfectly flat until hitting European hours and Easter holiday closures. After about 4 hours off, Treasury trading resumed and volatility increased modestly.

This week will offer a buffet table of economic data, most importantly on the inflation front. Wednesday brings CPI and this will be followed by the Thursday release of PPI while Friday will wrap up the inflation fun with the UMich indexes. CPI is expected to come in at a 5.1% annualized rate, which would be quite the drop from its previous 6% tally, and a 5.1% CPI rate would allow the Federal Reserve to sit on its hands at its current 5%

Fed funds target rate and allow that and roll off from its balance sheet to continue to put downward pressure the amount of credit in the economy. So while the Fed futures are predicting a 25 basis point hike on May 3, this time out I believe the Fed will pause, owing to all the banking turmoil of late. We have five Fed speakers on tap this week — four of them voters — as well on the Fed minutes from the March meeting on Wednesday.

Zillow showed home prices increased .9% in March – highest since June. Up 3% YoY – and down a little over 3% from their peak

The Fed Funds futures turned a bit more hawkish after Friday’s jobs report, with the May contracts now seeing a 70% chance for a rate hike, which would take the rate to 5%. So far, that seems to be the peak and the end-of-year contracts see the Fed Funds rate at 4.25%.

Bonds took today to get caught up after an unconventional holiday weekend (a short half day on Friday and a full trading day in the US today despite Europe being closed). MBS underperformed and Treasuries weakened modestly as of the 3pm CME close.  Even with today’s full session, volumes were still well under 50% of the norm.  That doesn’t mean we should dismiss the modest weakness as irrelevant, but we’ll defer to tomorrow for a more accurate pre-CPI starting point and then to CPI day itself (Wednesday) as the most probably source of inspiration this week, for better or worse.