Small, Defensive Shift Heading Into The Weekend
The highest core inflation in decades proved to be no big deal this morning. In fact, bonds rallied. Unfortunately, that set up for a technical selling opportunity as traders pared long positions heading into the weekend. The selling stalled right at the 1.53% technical level in 10yr yields. We'll hope that ceiling continues to hold and we'll send out another alert if it doesn't (provided MBS are following suit).
Fed MBS Buying 10am, 1130am, 1pm
Core PCE y/y 3.4 vs 3.4 f'cast, 3.1 prev
Consumer Sentiment 85.5 vs 86.5 f'cast, 86.4 prev
1yr inflation expectations down 0.4% from May
5yr inflation expectations down 0.2% from May
Stocks and bonds both popped modestly stronger after as-expected PCE data. Most of the rally has been retraced in bonds, but 10s are still down 1.4bps at 1.485 and UMBS 2.0s are holding gains of 2 ticks (0.06).
The low yields seen after PCE made for a good selling opportunity in bonds heading into the weekend. 10s are up half a bp now at 1.505 and 2.0 UMBS are unchanged at 100-24 (100.75).
More serious selling heading into the weekend and the 11am hour, but 10yr yields bounced almost perfectly at the 1.53% level. MBS are outperforming nicely for now. If 1.53% breaks, we could see another flush of weakness. If it holds, the week is over.