Bonds Consolidating at Higher Yields Ahead of CPI

The end of the week is marked by a battle with 3-letter abbreviations.  Tomorrow it will be CPI (the Consumer Price Index).  That will be the biggest potential market mover of the week, but its impact has yet to be revealed.  Today, it was the European Central Bank (ECB) with the latest policy announcement and press conference.  The ECB didn’t do anything unexpected in terms of policy, but it significantly raised its inflation forecast, thus opening the door for a faster pace of rate hikes in coming meetings.  That’s the way markets interpreted it anyway.  Fortunately, the spillover from the 10bp increase in EU yields was minimal by the time it was digested by domestic bonds.

Econ Data / Events

Fed MBS Buying  10am, 11:30am, 1pm

Jobless Claims 229k vs 210k f’cast, 202k prev

Market Movement Recap

08:36 AM Fairly flat overnight, but weaker after ECB announcement.  10yr up 3.2bps at 3.058 and MBS down just over a quarter point.

09:57 AM Bonds boosted by 9:30am NYSE Open despite ongoing weakness in EU bonds.  10yr yields briefly hit ‘unchanged’ levels but are now 1.1bp higher at 3.036.  MBS are still down a quarter point, but illiquidity accounts for more than an eighth of a point.

01:29 PM Stronger after the decent 30yr bond auction.  10yr almost back to unchanged on the day and MBD down only an eighth of a point.  

03:18 PM Post-auction gains remain mostly intact, but bonds weren’t able to rally past the low yields from the morning hours.  10s are up 1.7bps at 3.044 and UMBS 4.0 coupons are once again down a quarter point.
Source: Mortgage News Daily