The overnight session was uneventful for Treasuries, leading to almost perfectly unchanged opening levels in MBS.  Bond markets began moving quickly weaker following the 8:30am economic data.

At first glance, the weaker Housing Starts data should have had nothing to do with the selling pressure (weaker data is typically a net-positive for bonds).  That's probably a fair assessment, but less certainly than the headline suggests.  Reason being: the more even-keeled component of the data--Building Permits--actually improved nicely among single-family homes.  Multifamily permits dragged down the totals, but they're perennially more volatile.

All that having been said, the Consumer Price Index is likely the bigger deal at 8:30am.  That feels "weird" to consider as inflation data has been anything but a consideration when it comes to motivating weakness in bond markets for the past 4 years.  The accompanying selling pressure in stocks was a major clue though.

Old school market wisdom suggests bonds and inflation have a much stronger link than they've had in the age of QE.  Indeed, it would be odd to see increasing inflation, in and of itself, have as much of an effect on bond markets as it did this morning.  Thankfully, that's not exactly how it happened, so our sense of reality isn't overly violated.

Much more relevant than the actual effects of inflation are the effects that these sorts of inflation metrics will have on Fed policy!  Read that again if necessary, because that's what this morning's post-CPI sell-off is all about. 

Simply put, stronger inflation readings are one ingredient in accelerating the timeline for the removal of Fed accommodation.  That's why stocks got hit at the same time as bonds.  That's why we saw a surprising amount of movement from data that hasn't really mattered in four years.

Even then, bonds remain contained in the same range we've been evaluating almost all month (marked by 2.57-2.66 10yr yields). 

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
97-20 : -0-12
FNMA 3.5
101-25 : -0-11
FNMA 4.0
105-03 : -0-08
2 YR
0.4797 : +0.0127
10 YR
2.6423 : +0.0433
30 YR
3.4320 : +0.0350
Pricing as of 6/17/14 12:19PMEST

Morning Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:55AM  :  ALERT ISSUED: Adding Insult to Injury, Reprice Risk Already a Consideration
8:48AM  :  ALERT ISSUED: Bond Markets Much Weaker After Surprisingly Strong CPI

Live Chat Featured Comments
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Patrick McCarroll  :  "Its in B3-6-05 Monthly Debt Obligations if you encounter any issues"
Patrick McCarroll  :  "Justin, Fannie does not exclude deferred student loans like FHA does. Not sure about Freddie guides"
Justin Dudek  :  "with Conventional financing, student loans need to be deferred for at least 1 year to not count in debt ratio?"
Doug Seder  :  "We were just notified of USDA changing their policy with respect to IBR, but I have not seen any change on other loan products. "
Caroline Roy  :  "are you guys having luck with income based repayment plans for student loans? they are reassessed every year, but presumably, the payment only goes up if they are making more money..."
Matthew Graham  :  "basically, wage growth, adjusted for inflation"
John Sheadel  :  "When you stated "real earning," what were you referencing, specifically, MG?"
Andy Pada, Jr.  :  "earnings going down and prices going up is a recipe for disaster."
Oliver Orlicki  :  "getting ugly early"
Matthew Graham  :  "RTRS - U.S. MAY CPI +0.4 PCT, LARGEST RISE SINCE FEB 2013 (+0.3509; CONSENSUS +0.2 PCT); EXFOOD/ENERGY +0.3 PCT, LARGEST RISE SINCE AUG 2011 (+0.2585; CONS +0.2 PCT)"
Matthew Graham  :  "RTRS- US MAY HOUSING PERMITS 991,000 UNIT RATE (CONSENSUS 1,050,000) VS APRIL 1,059,000 UNIT RATE (PREV 1,059,000 UNITS)"
Matthew Graham  :  "RTRS- US MAY HOUSING STARTS 1,001,000 UNIT RATE (CONSENSUS 1,034,000) VS APRIL 1,071,000 UNITS (PREV 1,072,000 UNITS)"