It's been a weird morning so far with core CPI coming in at 0.4 vs 0.3 forecast--something that should have certainly sent bonds scrambling into weaker territory--only for bonds to rally after a few brief moments of selling.  This paradoxical result could have only been due to a few "yeah buts" in the underlying data.  Likely suspects include the drop in the closely watched shelter component (0.4 vs 0.6 previously), an even bigger drop in the even more stubborn medical services, and the simple fact that the 0.4% core reading was rounded from 0.358, so we were very close to a 0.3 reading after rounding.

If we had to pick one, it would be the main driver of shelter inflation: owner's equivalent rent (OER), which spiked disconcertingly to 0.6 last month.  This made it look like a calming trend was at risk of being derailed while today's data suggests last month may have been a one-off.

But let's not spend too much time explaining the positive bounce back considering it's already been erased.  Perhaps this is just traders trading it out or the market moving on from reacting to CPI and focusing instead on building in a concession for today's 10yr Treasury auction. 

Either way, things could have been a lot worse if the composition of the data was less promising.