Bonds rebounded slightly but respectably from slightly weaker levels after the session started. MBS consistently outperformed. The PCE inflation data was of little concern (no surprise given the expected outcome), but returns seemed to be paying some attention to the Chicago PMI at 9:45 a.m. (Chicago PMI at 72.1 versus 65.3). After months of complacency, this suggests that bonds are adjusting a little more to data. Hence, next week’s numerous big ticket reports (which culminate in non-farm payrolls) could lead to major moves.

Econ data / events

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

  • Core PCE inflation 1.8 vs 1.8 f’cast, 1.4 prev

  • Employment cost index 0.9 vs 0.7 f’cast, 0.7 prev

  • Chicago PMI 72.1 vs 65.3 f’cast

  • Consumer sentiment 88.3 vs 87.4 f’cast
    – 1-year inflation expectations down 0.3
    – 5-year inflation expectations unchanged

Market Movement Review

8:32 am

Very flat overnight with no real volatility in Asia or Europe. Start of the domestic session almost unchanged, with no immediate reaction to the economic data at 8:30 a.m.

10:07 am

A bit of weakness since the NYSE opened at 9:30 am. Additional losses after a strong PMI in Chicago at 945 a.m. and Hawk comments from Fed’s chaplain at 10 a.m. But now push back. 10 years and MBS remain practically unchanged.

1:43 pm

Further incremental gains with 10 year returns fell 1 basis point to 1.63% and 2.5 UMBS an eighth. No rhyme or reason other than month-end trade flows. Very flat since the rally at 10am.

6:07 pm

Bonds closed at / near their daily best levels after a very uneventful afternoon.