Both at the headline and core levels, April's Consumer Price Index (CPI) came in hotter this morning.  This was a high-consequence report for bonds, and they're acting the part with a big reversal of overnight gains and early weakness in MBS.  Stocks were also swept up in the implications for Fed policy (i.e. higher inflation = tighter Fed policy = bad for both stocks and bonds).

As for the data itself, the report was mixed.  Annual numbers actually declined from previous readings (headline down to 8.3 from 8.5 and "core" down to 6.2 from 6.5), but this has more to do with "base effects."  That means a higher inflation month last March just fell out of the year-over-year calculation. In addition to that "yeah but," inflation quite simply remains in disconcerting territory.  

Fed Funds Futures quickly moved to price more than half of another 25bp hike by the end of the year (17bps, specifically), but traders didn't really see any major changes to the implications for June's Fed meeting.

On a sidenote, it's ROLL DAY for UMBS 30yr fixed coupons.  This means that the left side of a 2 day chart on MBS Live shows coupons that settle in May and the right side shows coupons that settle in June.  This has the effect of making today's losses look visually larger than they actually are.  The price table in MBS Live, for instance, currently shows the actual level of weakness at -6 ticks (-.19),  but the chart shows a drop from yesterday's close of 16 ticks (.50).  The latter is erroneous because it compares June coupons to May coupons.  Read more on the roll HERE.