Did Rates Just Realize They’re Invincible?

Want to see an interest rate that isn’t worried about going much higher?  Start with record low rates.  Push them higher at a near-record pace.  Hit the highest levels in roughly 15 years, all the while referencing the threat of ever-higher inflation and a Federal Reserve that is more willing to hike the Fed Funds Rate than to worry about recession.  Oh, and throw in high gas/food prices and 2 straight years of 20% home/rent appreciation.  Lastly, hit the market with a much hotter-than-expected inflation report and jack up Fed rate hike expectations to 100bps for the subsequent meeting and observe the bond market’s reaction.  If rates end the day lower, they might be invincible. 

Econ Data / Events

CPI ……..1.3 vs 1.1 fcast, 1.0 prev Core CPI ..0.7 vs 0.6 f’cast, 0.6 prev
Annual CPI ……. 9.1 vs 8.8 f’cast, 8.6 prev Core Annual CPI  5.9 vs 5.7 f’cast, 6.0 prev

Market Movement Recap

08:16 AM sideways to slightly stronger overnight.  Treasuries held ground despite modestly higher EU bond yields.  10s currently down just under 2bps before CPI.  MBS are unchanged (despite looking lower due to the roll).

09:04 AM Sharply weaker after CPI, though (knock on wood) not as sharp as we might have expected given the results.  10yr yields up 7.1bps to 3.041 and MBS down just under half a point.

10:39 AM Paradoxical bounce covered in greater detail HERE.  10yr back down 2.2bps to 2.948 and MBS just a hair weaker on the day.

01:04 PM Super strong 30yr bond auction brings 10yr back near lows of day, down 5+bps at 2.919.  UMBS 4.5 coupons are up an eighth of a point at the highs of the day.