Lots of Competing Motivations Causing Volatility In a Narrow Range

Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility.  Of particular importance was the higher reading in quarterly PCE prices.  Because this is the first look at Q2 data, it’s one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning.  the 2.9 vs 2.7 reading suggests there’s extra inflation that will be distributed between April, May, and June.  If June accounts for more than the other two months, tomorrow’s PCE index will be higher than expected, and thus bad for rates.  That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week.

Econ Data / Events

Jobless Claims

235k vs 238k f’cast, 245k prev

Durable Goods

-6.6 vs 0.3 f’cast, 0.1 prev

Nondefense ex-air Durable Goods

1.0 vs 0.2 f’cast, -0.9 prev 

GDP 

2.8 vs 2.7 f’cast

Core PCE Prices Q/Q

2.9 vs 2.7 f’cast

Market Movement Recap

08:56 AM Sharply stronger overnight but losing ground after data.  MBS still up 7 ticks (.22) and 10yr still down 5+ bps at 4.24.

11:51 AM Decent amount of volatility in the AM hours.  Slightly negative drift, but MBS still up 6 ticks (.19) and 10yr still down 6bps at 4.229

01:43 PM Generally weaker after the auction, with losses focused on the short end.  MBS still up an eighth.  10yr still down 3bps, but near highs of day at 4.258