Bonds Reposition For "Higher For Longer" After GDP

Today's GDP number came in lower than expected at 1.1 vs forecasts calling for 2.0.  At face value, that should be good for rates, but bonds lost ground immediately and never made it back to the starting line.  The culprit was the underlying price data inside the report.  It raises the odds for slightly hotter inflation in general and specifically in tomorrow's PCE price report.  Fed Funds Futures led the charge--which can also be safely assumed by the fact that 2yr yields rose almost twice as much as 10yr yields.  In the background, the absence of a First Republic Bank failure (despite early rumors) provided fertile ground for the sell-off.

Econ Data / Events
    • Jobless Claims
      • 230k vs 248k f'cast, 246k prev
    • Q1 GDP
      • 1.1 vs 2.0 f'cast, 2.6 Q4
    • GDP Deflator
      • 4.0 vs 3.7 f'cast, 3.9 prev
    • GDP Core PCE
      • 4.9 vs 4.7 f'cast, 4.4 prev
Market Movement Recap
08:52 AM

Modest additional weakness after GDP deflator and PCE come in hot.  10yr up 3.6bps at 3.481.  MBS down an eighth.

10:38 AM

Bonds continue grinding into weaker territory as inflation expectations work their way through the market.  10yr up 7.5bps at 3.52.  MBS down a quarter point

02:08 PM

After a mid-day plateau, bonds are losing ground again.  10yr up 8.5bps at 3.53 and MBS down more than a quarter point. Stocks rallying.

04:12 PM

Off the weakest levels, but still sideways at higher yields and lower prices.  10yr up 7.9 on the day at 3.524.  MBS down only 6 ticks now (.19). 

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