There were a few good years in the middle of the financial crisis recovery where inflation data just didn't matter.  Various economic reports could indicate higher or lower inflation, but markets didn't respond.  Older dogs who'd lived through the 70's and 80's were confounded by this new world order.  But just when everyone was beginning to get on the same page with inflation not mattering, now it matters again!

Things are a bit different right now though.  The inflation that matters is the kind that might eventually show up and make the Fed wish they'd raised rates soon enough to keep it stably in check.  Of course it hasn't shown up yet, so the Fed is forced to look for clues that it might show up in the future. 

One of those clues is wage growth.  That wasn't so hot on Friday and markets responded in a major way.  Another clue is consumer spending.  That wasn't so great in this morning's data with zero improvement in 'real consumption.'  Then there are the inflation reports themselves and the inflation-related components.  Among these is the "prices paid" component of the ISM Manufacturing survey.  This came in at 44.0 today versus a median forecast of 49.0--a fairly substantial miss.

Other parts of this morning's economic data painted similar pictures with respect to the economy's ability to support increasing prices.  The market's fastest way to adjust it's take on inflation is via the trading of Treasury Inflation-Protected Securities (or TIPS).  We'll talk more about the finer points of TIPS tomorrow, but for now, all you need to know is that the "TIPS Breakeven" line in the following chart is the market's notion of where inflation is.  The lower the line, the lower inflation is seen to be.  In other words, it's fallen sharply in the past 2 weeks and today, hit its lowest levels since March.

2015-8-3 Tips Breakeven

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
100-25 : +0-03
FNMA 3.5
103-29 : +0-01
FNMA 4.0
106-14 : +0-00
2 YR
0.6650 : -0.0040
10 YR
2.1500 : -0.0372
30 YR
2.8540 : -0.0545
Pricing as of 8/3/15 6:01PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
9:44AM  :  Back to Positive Territory After ISM Data Leak

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Blake Carrillo  :  "I had one similar that went through, but the company was willing to indicate via the WVOE that he had a guaranteed number of miles with additional thereafter...that one went through, but was a one off for sure."
Blake Carrillo  :  "Yes. Income will vary with new position."
Caroline Roy  :  "kind of a long shot here. Got a guy who has been a commercial bus driver for a decade. Just took a commercial driving job getting paid by the mile. Commission type income, no? going to need two years?"
Steve Chizmadia  :  "Not a bad call IMO Dirk"
DIRK POSTUPACK  :  "NFP week so I am going to take these gains and get ready to lock."
Matthew Graham  :  "now we're past those, so it's arguably moot. Plus, it's also encouraging to see it at the beginning of a month where the end of the previous month might have been adding an unknown amount of month-end positivity. "
Matthew Graham  :  "just that these are basically the the best levels since june 1 because I throw out the early July Greece-related volatility."
Sung Kim  :  "what did you say? seems like a "healthy" move with legs no? give me something to hang my hat on"
Sung Kim  :  "does it mean anything that we got here without any "face-melting" days?"
Matthew Graham  :  "actually the break is more similar to early 2013, right before taper tantrum. But again, different circumstances "
Matthew Graham  :  "the last time we broke the 100 day moving average after spending this much time above it was in late 2013. Yields bounced higher into the end of the year, but the next break held. I may include a chart tomorrow morning."