Surprisingly, the story of the day turned out to be Core CPI coming in at +0.2558 vs a forecast of +0.2.  This was apparently enough to  send bond markets reeling (relatively).  The fact that the shorter maturities got hit the hardest, suggests that it was a pure rate-hike-timing trade.  Reason being: the Fed Funds rate is literally an overnight rate target, and overnight rates are as short as they come.  So a change in the overnight rate outlook radiates out from there in terms of duration.  As such, it's no surprise to see 2-5yr Treasuries end the day up more than 4bps while 30yr Treasuries actually improved.

10yr yields were somewhere in between, losing only 1.9bps.  The average mortgage has a bit of a shorter duration than 10yrs, and consequently underperformed, but only slightly.  After the CPI reaction (an initial pop right at 8:30 and follow through selling until 8:45), the day was over for Treasuries.  Yields never went higher than they were at 8:45am and never went lower than the 8:30am level set by the initial pop.

That means that Janet passed without a trace.  If CPI was a surprise, this wasn't.  Not only was it not a surprise to see a limited reaction in markets, but Yellen didn't even give us any reason to believe that there will be a reaction on Tuesday when market participants return from the long weekend.  Because of the CPI reaction though, bonds got into a more defensive position ahead of Yellen.  Once her speech was revealed to be a dud, we moved back toward the stronger side of the afternoon trading range.


MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
100-24 : -0-09
FNMA 3.5
104-00 : -0-07
FNMA 4.0
106-15 : -0-05
Treasuries
2 YR
0.6180 : +0.0410
10 YR
2.2140 : +0.0190
30 YR
2.9860 : -0.0050
Pricing as of 5/22/15 3:18PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
1:05PM  :  ALERT ISSUED: Muted Reaction to Yellen's Speech; Slightly Negative at First
12:27PM  :  ALERT ISSUED: Low Liquidity Melt-Down; Negative Reprices Increasingly Likely
10:03AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
8:48AM  :  ALERT ISSUED: Surprisingly Weak Reaction to Slightly Stronger Inflation

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "RTRS - YELLEN SAYS LABOR MARKET STILL NOT FULLY HEALED, AS SEEN IN LOW WAGE GROWTH, HIGH NUMBERS OF SIDELINED WORKERS"
Matthew Graham  :  "RTRS- YELLEN SAYS FACTORS RESTRAINING INVESTMENT, INCLUDING LOW ENERGY PRICES AND RISK AVERSION, MAY PERSIST"
Matthew Graham  :  "RTRS- YELLEN SAYS WEAK START TO 2015 THE RESULT OF TRANSITORY FACTORS, "STATISTICAL NOISE," SHOULD GIVE WAY TO MODERATE GROWTH FOR THE REST OF THE YEAR"
Matthew Graham  :  "RTRS- YELLEN SAYS STRONG JOB MARKET, LOWER GAS PRICES, OTHER FORCES PUSHING UP REAL DISPOSABLE INCOME FOR FAMILIES SHOULD BOOST GROWTH"
Matthew Graham  :  "RTRS- YELLEN SAYS SEES U.S. ECONOMY'S HEADWINDS BEGINNING TO FADE, LEAVING IT WELL POSITIONED FOR GROWTH"
Matthew Graham  :  "RTRS- YELLEN SAYS BELIEVES INFLATION WILL RISE TO TARGET AS ECONOMY CONTINUES TO IMPROVE"
Matthew Graham  :  "RTRS- YELLEN SAYS RATE HIKE PATH WILL BE GRADUAL, WITH SEVERAL YEARS BEFORE RATES GO BACK TO NORMAL"
Matthew Graham  :  "RTRS - FED'S YELLEN SAYS APPROPRIATE TO RAISE RATES THIS YEAR IF ECONOMY CONTINUES ON CURRENT PATH"