Helpful Data and Treasury Auction Set High Bar For CPI

Another fairly straightforward day for the bond market with friendly econ data and a strong 10yr Treasury auction both helping push yields lower. If it seems like the size of the miss in the PPI data justified a bigger move, consider the fact that it’s an incredibly volatile data series. Additionally, last month’s PPI created “base effect” issues (i.e. it was so high that today’s -0.1% reading leaves the 2 month annualized level at 3.6%–still too high. Nonetheless, it was good enough news for bonds to push back against overnight weakness.  The afternoon’s 10yr auction helped bring yields to new lows for the day before ebbing slightly higher in the afternoon. Thursday AM’s CPI release is this week’s big to-do from a potential volatility standpoint.

Econ Data / Events

Core Producer Prices MM (Aug)

-0.1% vs 0.3% f’cast, 0.9% prev

Core Producer Prices YY (Aug)

2.8% vs 3.5% f’cast, 3.7% prev

Producer Prices (Aug)

-0.1% vs 0.3% f’cast, 0.9% prev

Market Movement Recap

09:24 AM Stronger after PPI data.  MBS up roughly 1/8th and 10yr down 2.8bps at 4.055

11:59 AM Best levels.  MBS up 5 ticks (.16) and 10yr down 3.7bps at 4.046

01:05 PM Strong 10yr auction prompts just a bit more buying in TSYs.  10yr now down 5.7bps at 4.026.  MBS still up 5 ticks in 5.5 coupons, but almost 3/8ths in 5.0 coupons. 

04:13 PM MBS now up 3 ticks (.09) in 5.5 coupons and 6 ticks (.19) in 5.0 coupons.  Both are down about an eighth from highs.  10yr down 3.8bps at 4.046