Bonds Eventually Pass on Decisive Reaction to Tuesday’s Data

Right at the 8:30am release time, bonds rallied on core CPI almost perfectly hitting unrounded forecasts (.32 vs .31). Additionally, the 2.7% vs 2.8% annual headline number was another step in the right direction. As markets digested the internals, the “yeah but” trading emerged.  “Yeah buts” included supercore CPI (core services excluding housing) rising to 0.481 vs 0.212 month-over-month and evidence of the tariff impact via the highest annual core goods inflation since June 2023.  So on one hand, declines in housing related inflation are finally helping keep the number down while other categories are pushing back in the other direction, keeping the broader numbers a bit stubborn.  The mixed data and mixed market reaction place even more emphasis on the next jobs report when it comes to informing the next big move for rates.

Econ Data / Events

m/m CORE CPI (Jul)

0.3% vs 0.3% f’cast, prev 0.2%

m/m Headline CPI (Jul)

0.2% vs 0.2% f’cast, prev 0.3%

y/y CORE CPI (Jul)

3.1% vs 3% f’cast, prev 2.9%

y/y Headline CPI (Jul)

2.7% vs 2.8% f’cast, prev 2.7%

Market Movement Recap

09:30 AM Initial rally followed by a sell-off after CPI.  10yr up 1.7bps at 4.302.  MBS still 3 ticks (.09) higher on the day, but post-CPI gains are erased.

10:50 AM Off the weakest levels.  10yr up 1.3bps at 4.296 and MBS up an eighth of a point.

01:49 PM Turning out to be fairly uneventful.  MBS up 5 ticks (.16) and 10yr up 0.7bps at 4.292

04:30 PM Strongest levels since the post-CPI selling. MBS up 6 ticks (.19) and 10yr nearly unchanged at 4.287