Ever since last week's CPI data caused inflation expectations to surge, they've been staging for a return to earth--one that's largely occurred over the past 2 days as traders increasingly bet on transitory inflation. This morning's weak Philly Fed numbers kept that trade alive, as did the afternoon's 10yr TIPS auction. As for yields themselves, they were largely flat after early gains, but the early gains were very respectable with 10yr yields dropping roughly 4bps. This keeps us very much inside the range of the past week (1.62-1.69).
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Fed MBS Buying 10am, 1130am, 1pm
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Jobless Claims 444k vs 450k f'cast, 478k prev
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Philly Fed Index 31.5 vs 43.0 f'cast, 50.2 prev
Bonds were modestly stronger in the overnight session as investors checked and double-checked for the presence of an actual, new threat of tapering discussion in the Fed Minutes. It's just not there. Not yet. So the panicked weakness can subside a bit. The AM econ data helped the rally extend slightly. 10yr down just under 2bps in total.
Nice move deeper into positive territory right at the 930am NYSE open. 10yr yields dropped to 1.635 and have been holding there ever since. MBS are up 5 ticks (.16) to 103-14 (103.44).
Still sideways at the same levels as 3 hours ago! Very VERY light volatility. Barring an unforeseen headline shock, today is in the books with a healthy improvement and reinforcement of the range.
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