We absolutely hate the term "front-running" because it can be perceived as connoting some measure of clairvoyance on the part of the bond market. To be clear, that's not the contention here. Rather, we noted that bonds were trading somewhat optimistically yesterday in that they outperformed their typical correlation with oil prices. That theme continued overnight and promptly ended when CPI came out right in line with forecasts. There are several ways to reconcile this turn of events, but one of the easiest is to speculate that traders indeed saw some sort of asymmetric risk in favor of bond buying ahead of CPI. The rest of the day was spent gradually returning to unchanged levels with yields still doing their best to defend longer-term ceilings (around 4.70% in terms of the 10yr).
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- m/m CORE CPI (Jul)
- 0.2% vs 0.2% f'cast, 0% prev
- m/m Headline CPI (Jul)
- 0.1% vs 0.1% f'cast, -0.4% prev
- y/y CORE CPI (Jul)
- 2.5% vs 2.5% f'cast, 2.6% prev
- y/y Headline CPI (Jul)
- 3.4% vs 3.4% f'cast, 3.5% prev
- m/m CORE CPI (Jul)
MBS up 6 ticks (.19) and 10yr down 3.8bps at 4.654. No major reaction to CPI.
MBS up 6 ticks (.19) and 10yr down 1.7bps at 4.675
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