Heading into this week, we looked to today as the biggest potential source of volatility owing to the release of the Consumer Price Index (CPI) and the end of the Treasury auction cycle.  The volatility definitely showed up, but those two factors were at the bottom of the list of today's market movers.

CPI was mostly ruled out as a market mover after Fed Chair Powell talked about inflation on Tuesday.  I talked more about why that was the case in the Day Ahead.  Deceptively, yields started spiking a few minutes after CPI.  Was I wrong to downplay its significance?  I definitely thought so for a moment, even though it wasn't logical, but looking at other markets it was easy to see the move originated in Europe (as discussed in THIS update).  Europe would continue to have an impact through the AM hours as Brexit hopes ticked up on reports of compromise in a meeting between Boris Johnson and Irish PM Varadkar.

Trade-related updates pushed stocks higher and that surge generally coincided with higher bond yields.  While that's a typical sort of correlation, the damage for bonds was already halfway done before stocks had their say.  The rest of the morning hours were spent drifting slightly higher in yield.  Treasury losses were capped out when Europe closed and yields never made it back above those levels.  All of the above having been said, there were indeed isolated instances of stock/bond correlation in response to trade-related updates.  They just didn't dominate the day for the bond market.

Tomorrow will be interesting.  It's the day before a 3-day weekend and there is certainly headline potential due to the ongoing US/China trade negotiations.  From a technical standpoint, there's a risk that bonds have bounced at recent lows and are heading back to the upper end of a longer-term consolidation pattern (as seen in the MBS Huddle).  

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
101-12 : -0-12
10 YR
1.6700 : +0.0830
Pricing as of 10/10/19 6:07PMEST

Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
3:15PM  :  ALERT ISSUED: Negative Reprice Risk Increasing
11:29AM  :  More Backstory on Today's Weakness as Bonds Level-Off
10:02AM  :  ALERT ISSUED: Negative Reprice Risk Increasing
9:45AM  :  ALERT ISSUED: Bonds at Weakest Levels
8:39AM  :  CPI As Expected, But Bonds are Weakening

MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "take credit where it's due MH. (MH and I spoke earlier and he said we should probably stop speaking so I could write another alert)."
Matt Hodges  :  "i'm not sure there's a better MBS analyst, consistently working for us"
Matt Hodges  :  "MG's 3:15: Some of the more aggressive lenders may even come back around for a 2nd pass."
Oliver Orlicki  :  "2nd of the day"
Matthew Graham  :  "Holiday market closures from https://www.sifma.org/resources/general/holiday-schedule/ VIEW IMAGE"
Matthew Graham  :  "1.67 is the important ceiling"
Matt Hodges  :  "11:29 comments from MG: I'd be willing to give MOST of the credit to Europe. If that seems like too much to ask, just consider how German Bunds have been moving in relation to US markets in the slightly bigger picture:"
Justin Harward  :  "so blame Europe?"
Matthew Graham  :  "it's tough to accurately predict the future"
Justin Harward  :  "today's movements are the exact opposite of what I expected yesterday evening after news the china trade delegation was bouncing early"
Paul Martin  :  "Market be like--Brexit fixed: check China Trade Deal: check Draghi gone and Lagarde is a hawk?: check....why do I doubt?"
Oliver Orlicki  :  "well, shouldnt this run up on the 10 help us in regard to the auction?"
Matthew Graham  :  "Incidentally, Europe closes when the auction hits, so that should be fun to sort out. I'm thinking we benefit more simply from an absence of European trading today than from a strong 30yr auction."
Matthew Graham  :  "late day british bond trading in the driver's seat now as Brexit headlines are prompting a sprint to the finish line for European bond sellers."

Economic Calendar
Time Event Period Actual Forecast Prior
Thursday, Oct 10
8:30 Core CPI (Annual) (%)* Sep +2.4 2.4 2.4
8:30 Jobless Claims (k) w/e 210 219 219
13:00 30-Yr Bond Auction (bl)* 16