Inflation Surprises Delay The Decision

In the short term, it's nice to see that today's massively higher PPI reading didn't do more than it did to crush the bond market's spirit.  This isn't the craziest turn of events given that we already had a bit of spirit crushing after Tuesday's CPI, but that several Fed speakers said they're not reading too much into one month of data that breaks from the recent disinflationary trend.  In the slightly bigger picture, however, there's an opportunity cost.  Sure, things may not be unimaginably worse than they were last week, but where would we be if inflation came in slightly below forecast?  Very likely, that would have resulted in a much more constructive narrative heading into March where a decent result in NFP and CPI in 3 weeks would pave the way for the Fed to give the first signal that a rate cut would be on the table in subsequent meetings.  As it stands, even if the data released in March is bond-friendly, it will have to be taken with a grain of salt until April.  More waiting as opposed to less.

Econ Data / Events
    • M/M Core PPI
      • 0.5 vs 0.1 f'cast -0.1 prev
    • Y/Y Core PPI
      • 2.0 vs 1.6 f'cast, 1.8 prev
Market Movement Recap
09:08 AM

Moderate overnight weakness and additional selling after PPI data.  MBS down half a point.  10yr up 7.5bps at 4.311

10:47 AM

Well off the lows now with MBS down only 11 ticks (.34) and 10yr up 6bps at 4.295

12:36 PM

Slipping again.  MBS down 14 ticks (.44) and 10yr up 7bps at 4.307.

04:53 PM

Near best levels since before this AM's data after a steady afternoon grind.  MBS down only 10 ticks (.31) and 10yr up 4.3bps at 4.279

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