The highest core inflation in decades turned out to be no big deal this morning. Indeed, bonds rebounded. Unfortunately, this offered a technical sell opportunity as traders reduced their long positions over the weekend. Sales stagnated right at the technical level of 1.53% with 10-year returns. We hope the cap continues and send another warning if it doesn’t (assuming MBS follow suit).

Economic data / events

  • Fed MBS purchases 10 a.m., 11:30 a.m., 1 p.m.

  • 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 back
    1-year inflation expectations down 0.4% from May
    5-year inflation expectations down 0.2% from May

Summary of the market movement

8:42 am

Both stocks and bonds rose slightly more on the expected PCE data. Most of the rally has been traced in bonds, but 10’s are still down 1.4bps to 1.485 and UMBS 2.0 is holding gains of 2 ticks (0.06).

10:23 a.m.

The low post PCE yields offered a good selling opportunity for bonds over the weekend. 10’s are now up half a bp at 1.505 and 2.0 UMBS are unchanged at 100-24 (100.75).

11:44 am

More serious sales are on the weekend and into the 11 am, but 10-year returns rose almost perfectly to the 1.53% level. MBS are doing well at the moment. If 1.53% breaks, we could see another period of weakness. If it holds up, the week is over.