Bonds recovered modestly but respectably after starting the session at slightly weaker levels. MBS outperformed throughout. PCE inflation data was of little consequence (no surprise considering the as-expected result), but yields did seem to pay some attention to Chicago PMI at 9:45am (Chicago PMI at 72.1 vs 65.3). After months of complacency, this suggests bonds are starting to tune into data a bit more. As such, next week's slew of big-ticket reports (culminating in nonfarm payrolls) could make for bigger moves.
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Fed MBS Buying 10am, 1130am, 1pm
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Core PCE Inflation 1.8 vs 1.8 f'cast, 1.4 prev
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Employment Cost Index 0.9 vs 0.7 f'cast, 0.7 prev
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Chicago PMI 72.1 vs 65.3 f'cast
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Consumer Sentiment 88.3 vs 87.4 f'cast
- 1yr inflation expectations down 0.3
- 5yr inflation expectations unchanged
Very flat overnight with no real volatility in Asia or Europe. Starting domestic session almost perfectly unchanged, without any immediate reaction to the 8:30am econ data.
A bit of weakness since the 9:30am NYSE open. Additional losses after strong Chicago PMI at 945am, and hawkish comments from Fed's Kaplan at 10am. Pushing back now though. 10yr and MBS still effectively unchanged.
More incremental gains with 10yr yields down 1bp now at 1.63% and 2.5 UMBS up an eighth. No rhyme or reason apart from month-end tradeflows. Very flat since the 10am rally.
Bonds closed at/near their best levels of the day after a very uneventful afternoon.
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