Bonds began the day in relatively unchanged territory versus yesterday's close and soon encountered the slightly stronger CPI data (2.2 vs 2.1% for CORE CPI).  This gave the appearance of selling pressure for a few minutes, but as expected, it was mild and temporary.  In fact, 10yr yields and MBS were at their best levels of the day less than an hour later.  2yr yields, however, didn't see the same sort of bounce.  One might argue that the CPI data is only important inasmuch as it failed to give the Fed a clear green light to cut by 50bps at the next meeting (something a lot of people think might actually happen).  

The 2yr weakness combined with the 10yr recovery brought the yield curve dangerously close to 0.00....  a level that doesn't matter in the slightest except that a lot of people will talk about it as if it does.  To be clear, I'm not saying an inverted or super flat yield curve doesn't matter, simply that there's no functional difference between 0.02% and 0.00% in the big picture.  

In any event, the day's biggest move followed fresh headlines suggesting a delay in the most recently announced tariffs on Chinese goods.  Stocks and bond yields jumped.  The magnitude of the weakness was well within recent norms, but MBS voiced their protest of the unexpected volatility by weakening against Treasuries progressively in the afternoon (they had been outperforming earlier and this simply brought that performance back to neutral).

It continues to be the case that the mortgage world will need to see lower volatility in the broader bond market and an absence of big drops in Treasury yields in order to close the gap.