Not as Bad as it Could Have Been

After Wednesday’s Fed-driven sell-off, it was unlikely if not impossible that bonds wouldn’t end up saying they had a bad week.  That is certainly still the case, but after Friday, it’s not as bad as it could have been.  PCE inflation came in at 0.1% at the core level, month over month.  If inflation repeated that performance for 12 months, annual inflation would be below the 2.0% target. Headline inflation is even lower and has been doing even better in terms of getting back to a target trajectory.  Bond traders are largely able to price in PCE data because a good amount of it can be calculated from CPI/PPI which come out 2 weeks earlier. There was still enough of a surprise for 10yr yields to drop a quick 6bps and ultimately end the day 4bps lower than yesterday.

Econ Data / Events

M/M Core PCE

0.1 vs 0.2 f’cast, 0.3 prev

Y/Y Core PCE

2.8 vs 2.9 f’cast, 2.8 prev

Market Movement Recap

09:25 AM Slightly stronger overnight with additional gains after PCE data.  MBS up 11 ticks (.34) and 10yr down 6.8bps at 4.503

01:14 PM Generally stronger, but off the highs.  MBS up 10 ticks (.31) and 10yr down 6.4bps to 4.507

01:52 PM Down just over an eighth from highs in MBS.  10yr down 6bps at 4.511