Another Day, Another Sell-Off

Bonds may not have sold off in an overly excessive manner today, but they sold off nonetheless.  In other words, rates went higher.  The early culprits were twofold: a surprisingly hot Producer Price Index and some comments from Fed’s Mester on the prospect of a 50bp rate hike.  Then in the afternoon, Fed’s Bullard said similar stuff and went a step further, saying he wouldn’t rule anything out for the next meeting.  All this after Fed members spent the past 3 weeks sounding unified on “25bps is all we need.”  The sudden shift in tone spooked bonds a bit, but it’s still up to data to drive the decision.  Fed Funds Futures suggest we haven’t yet seen enough data to price in a 50bp hike.  The result is intraday volatility that gives way to moderate additional weakness.

Econ Data / Events

Jobless Claims

194 vs 200 f’cast, 195 prev

Core Producer Prices M/M

0.5 vs 0.3 f’cast

Philly Fed

-24.3 vs -7.4 f’cast, -8.9 prev

Housing Starts

1.309m vs 1.360m f’cast, 1.371m prev

Fed’s Mester: 

SAW A ‘COMPELLING’ CASE FOR 50 BPS HIKE AT LAST FOMC MEETING

Market Movement Recap

08:56 AM Flat overnight and weaker after data and Fed’s Mester.  10yr up 2.7bps at 3.832.  MBS down just under a quarter point.

09:44 AM Additional selling momentum in Treasuries with 10yr up 5.6bps at 3.859.  MBS down just over a quarter point.

12:45 PM Nice bounce back underway since 10am.  MBS down only 2 ticks (0.06).  10yr up only 3.5bps at 3.838 (down from 3.869).

03:09 PM Some quick selling pressure after Bullard comments on 50bp hikes.  10yr up 5.2bps at 3.855. MBS down just over a quarter point.