Why Were Rates Able to Defy Stronger Data?

With at least one Fed speaker mentioning Retail Sales as having a bearing on the Fed’s debate between a 75bp and 100bp hike at the upcoming July meeting.  With a 1.0 vs 0.8 result, the market didn’t really get a definitive verdict.  Yes, it’s stronger, but not by enough as to make the Fed’s choice obvious.  It was also not enough to push inflation-adjusted sales into positive territory.  In short, it provided additional fuel for the notion that recession may take the reins from the rate hike regime in the 2nd half of 2022.  Longer-term rates (like mortgages and 10yr Treasuries) are better able to benefit from such things than 2yr yields or shorter-term Fed Funds Futures.

Econ Data / Events

Retail Sales…………….. 1.0 vs 0.8 f’cast -0.1 prev Import Prices…………… 0.2 vs 0.7 f’cast, 0.5 prev NY Fed Manufacturing… 11.1 vs -2.0 f’cast

Industrial Production -0.2 v +0.1 f’cast, 0.0 prev Consumer Sentiment 51.1 vs 49.9 f’cast 5yr inflation expectations 2.8 vs 3.1 prev, lowest in a year consumer expectations lowest since 1980

Market Movement Recap

08:39 AM Slightly stronger overnight.  Briefly weaker after Retail Sales data, but now back into positive territory with 10yr down 3bps at 2.928 and MBS up almost an eighth at 99-31 (99.97).

10:15 AM 2-way volatility all morning.  Most recently, lower inflation expectations took bonds from red to green at 10am.  10yr is down 2.2bps at 2.936 and MBS are up 1 tick (0.03).

03:36 PM Once again, bonds have managed to remain flat for the entire afternoon.  10yr yields are right in line with previous levels (2.93 currently) and MBS are 6 ticks (.19) higher at 100-02 (100.06).