August Starts Strong Thanks to Weaker Econ Data

During the Fed’s press conference last week, Powell reiterated what we thought we already knew about Fed policy and the bond market in general.  Specifically, the next big-picture shift will be data dependent.  In several ways, that narrative already began playing out in July.  Now August is kicking things off in the same vein with a big drop in manufacturing inflation (via ISM’s “prices paid” component) this morning.  Bonds rallied after that to end the day at the best levels in months. 

Econ Data / Events

ISM Manufacturing

52.8 vs 52.0 f’cast, 53.0 prev

ISM Prices Paid

60.0 vs 75.0 f’cast, 78.5 prev

Market Movement Recap

08:31 AM Roughly unchanged overnight, but weaker in the past 10 minutes with sellers lined up to sell at the 8:20am CME open (some extra oomph from “new month” positions).  10yr up a quick 2.9 bps to 2.685.  MBS down 6 ticks (.19) at 100-12 (100.375).

09:26 AM Nice bounce heading into the 9am hour.  No obvious reason although stocks were falling at the same time.  10yr down 2.2bps to 2.634.  MBS near unchanged levels, but still looking for liquidity (i.e. prices could be slightly better than unchanged by the time buyers and sellers get on the same page). 

03:32 PM Flat all day after the AM gains.  MBS moved 6 ticks higher on the day (.19) and haven’t been far from those levels since then–currently up 7 ticks (.22). 10yr yields are down 6.3bps at 2.595 and have also been mostly flat in the PM hours.