MBS are up 8 bps. Stocks up 18. 10y is Flat
The importance of today’s CPI report may have seemed overstated on the approach, but the market’s reaction to the merely AS-EXPECTED core numbers shows that it could not have been overstated. 10yr yields have rallied an instant 9bps–perhaps one of the largest reactions of the past few decades for economic data that was right in line with expectations.
m/m CPI = 0.1 vs 0.2 f’cast, 0.4 prev
y/y CPI = 5.0 vs 5.2 f’cast, 5.5 prev
Core m/m CPI = 0.4 vs 0.4 f’cast, 0.5 prev
Core y/y CPI= 5.6 vs 5.6 f’cast, 5.5 prev
Unfortunately, heavy selling in EU bonds and a looming Treasury supply environment are pushing back on the early rally. That said, a closer look at the CPI numbers provides hope for the coming months.
Here are a few highlights from what was largely an as-expected Fed Minutes release:
- FED MINUTES: PARTICIPANTS AGREED ACTIONS TAKEN BY THE FED AND OTHERS HAD HELPED CALM BANKING SECTOR CONDITIONS
- FED MINUTES: PARTICIPANTS COMMENTED THAT RECENT PRE-MEETING DATA INDICATED SLOWER-THAN-EXPECTED PROGRESS ON DISINFLATION
- FED MINUTES: SEVERAL PARTICIPANTS NOTED THEY CONSIDERED WHETHER IT WOULD BE APPROPRIATE TO LEAVE RATES UNCHANGED AT THIS MEETING
- FED MINUTES: HOWEVER THESE PARTICIPANTS NOTED ACTIONS TAKEN HELPED CALM CONDITIONS AND LOWERED NEAR-TERM RISKS, ALLOWING THEM TO JUDGE AN INCREASE AS APPROPRIATE
- FED MINUTES: SEVERAL PARTICIPANTS NOTED WAGE GROWTH WAS STILL WELL ABOVE RATES CONSISTENT WITH 2% INFLATION TARGET
This morning’s “as-expected” inflation data was very well received by the bond market. In other words, it resulted in a much bigger rally than the results would have suggested in and of themselves. It was short-lived in any event as bonds returned to unchanged by mid-day. The 10yr auction pushed yields higher while the Fed Minutes allowed for a recovery back into stronger territory. All of the above transpired in a fairly narrow range–especially relative to last week’s market movers.