Modest Friday Bounce Does Little to Alter Bigger Picture

After a decent mid-day recover, bonds gave up their gains heading into the 3pm close.  It’s a level of weakness that demands no explanation in the bigger picture–especially on a Friday afternoon of a week with a rally on every single previous day.  Nonetheless, one could make a case for the bump by pointing to things like Senate moving closer to a spending bill vote with reports suggesting slightly more spending than before.  Separate headlines involved Trump declaring an end to trade negotiations with Canada–something that might imply inflation pressure to some traders. Friday aside, the week’s theme was one of lower Fed Funds Rate expectations and that will either be amplified or called into question by the key economic reports next week (as well as CPI the following week).

Econ Data / Events

Core PCE M/M

0.179 vs 0.1 f’cast

Core PCE Y/Y

2.7 vs 2.6 f’cast, 2.6 prev

Inflation adjusted spending

-0.1 vs 0.1 f’cast, 0.2 prev

Consumer 1yr inflation expectations

Down 0.1% m/m

Consumer 5yr inflation expectations

Down 0.1% m/m

Market Movement Recap

08:50 AM Slightly weaker overnight and sideways to slightly stronger after data.  MBS down 3 ticks (.09) and 10yr up 1.9bps at 4.254

09:43 AM 10yr yields are up 5bps at 4.286 and MBS are down 6 ticks on the day (0.19) and an eighth of a point from AM highs.

02:02 PM Decent recovery with 10yr nearly unchanged at 3.722 and MBS down 3 ticks (.09).