MBS began the session at a disadvantage after overnight trading pushed bond yields and stock prices higher. At 8:30am, the Consumer Price Index (CPI) data was a bit softer than expected.
With the increasingly real conversation about raising rates at the Fed, inflation is rapidly becoming a market mover again after taking at least 4 years off. Today's reaction to CPI is one of the biggest we've seen to inflation data recently. Although the headline numbers were in line with expectations, Core CPI (which factors out the more volatile food and energy prices) fell to +0.1 from last month's +0.3. Forecasts called for +0.2.
MBS and Treasuries improved noticeably after that. Fannie 3.5s went from 5/32nds down on the day to 3/32nds higher. 10yr yields dropped from 2.5 to 2.46.
Rising stock prices and a stronger-than-expected Existing Home Sales report pushed bonds back in the other direction, though not all the way back to morning lows. The net effect is slight losses for production MBS with Fannie 3.5s down only 1 tick at the moment.
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