War Headlines Cause Mid-Day Reversal

Bonds started the day inconsequentially weaker and picked up some gains after CPI came in a hair lower than expected at the core level. Just before noon, yields began rising and ultimately hit the 3pm close up a few bps versus yesterday. MBS were down about an eighth of a point, but it wasn't enough for the average lender to bother with a reprice. A forensic audit of the afternoon weakness leaves only one explanation: war headlines. Specifically, Trump said the U.S. would be "attacking hard again today." The market may increasingly take these headlines with a grain of salt, but it doesn't ignore them. Both oil prices and bond yields moved higher after that and there were no notable alternative explanations for the 10yr weakness although the aftermath of the 10yr Treasury auction may have caused some supply/demand imbalances that contributed.