Uneventful Afternoon; Reprices Risk/Potential is Muted; Silly Bullard
MBS and Treasuries are in the same sideways range set by the morning hours. Heading into 1pm, if MBS had made any more progress, we may well have seen a positive reprice or two. Positive reprice potential is increasingly unlikely to make an appearance today, though it's not technically impossible. Negative reprices are still a very small risk, but also looking like a long shot at the moment.
As a bit of a non-market-moving aside, Fed's Bullard was out earlier saying all sorts of silly things like this week's inflation data (which notably was quite weak in the "real wages" area--precisely where it needs to grow to justify higher rates) is a "signal" that inflation data is moving in the right direction. He also noted that he sees a "neutral" Fed Funds Rate at 4%, which is quite a statement considering the Fed Funds rate dropped precipitously from 19% in 1981 to 0-.25% currently.
Academics and practitioners agree that we're not likely to ever repeat the mistakes that resulted in 70's-style inflation. To whatever extent Bullard bases his 4% thoughts on past precedent, it's worth noting that past precedent has been in an ongoing recovery from the late 70's to this day! We have no way of knowing what a neutral Fed Funds Rate would be! Fortunately, markets don't think he does either have learned not to react as much to his outer-spectrum talking points.