Bonds Reacting to Data. Is It Justified?

Retail Sales came out at 0.6 vs a median forecast of 0.4 and rates moved higher as a result.  Is the reaction justified?  In a word: yes.  There is no distortion from the fact that this is December's data because this report is seasonally adjusted.  How about the fact that everything costs more, so of course Retail Sales will be higher?  That's true, actually.  Inflation also inflates this data series, but inflation was 0.3% last month, which is only half the Retail Sales result.  More importantly, the economists doing the forecasting know all this stuff, so even if both of these aspects led to heavy distortions, a beat is still a beat when it comes to the bond market's reaction.  10yr yields ended the day 5bps higher at 4.106 and MBS lost nearly 3/8ths of a point.

Econ Data / Events
    • Retail Sales
      • 0.6 vs 0.4 f'cast, 0.3 prev
Market Movement Recap
08:44 AM

Moderately weaker overnight with additional selling after Retail Sales data.  MBS down 3/8ths.  10yr up 5bps at 4.102

12:32 PM

Fairly sideways since initial weakness.  Trading levels are exactly the same as the last update

04:42 PM

Still exceptionally flat.  MBS and Treasuries both right in line with levels from the previous updates.

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