Another Solid Day, But It's All About Wednesday's CPI
Bonds managed to post a 2nd consecutive day of gains on Tuesday--a feat seldom seen in 2022 apart from the initial flight to safety at the start of the Ukraine war. Actual motivations for the gains are as hard to justify as the motivations for the sell-off last Friday. One looks like a correction to the other. If forced to name names, we might point to tempered comments from several Fed speakers including Williams, Mester, Barkin, and Waller. All sang similar tunes regarding the near term game plan of several 50bp hikes followed by "data dependency." On that note, much depends on Wednesday's CPI report to give us critical confirmation or rejection of the potential inflation plateau that began to take shape over the past 2 reports. The wild card is the risk of early fallout from recent commodity price spikes.
Fed MBS Buying 10am, 11:30am, 1pm
Stocks bounced overnight, but EU bonds led a rally toward lower yields and Treasuries followed. Early domestic trading continuing the momentum. 10yr down 6+ bps at 2.969. MBS up a quarter point, but still illiquid (could be up even more by the time things settle.
After a brief bounce early, bonds are back near the day's best levels with 10s down 8.4bps at 2.95% and MBS up half a point. Stock losses and declines in oil prices are in play for a 2nd straight day.
Some volatility surrounding the 3yr auction, but mostly driven by illiquidity in MBS. 4.0 coupons still up 3/8ths. 10yr still down 7.4bps at 2.96%
A bit of weakness in the PM hours, but it's been fairly linear and orderly. MBS still up almost a quarter point and 10yr yields still down almost 4bps at 2.997.