Slightly More Focus Than Normal on Thursday’s CPI

Wednesday ended up being an uneventful trading day with bonds mostly sideways and well within the recent trading range. This isn’t hard to believe given the absence of any relevant market movers. Thursday could be different thanks to the Consumer Price Index (CPI). This is one of those reports that has occasionally swung for the fences, but that can also have almost no impact. The present example could receive a bit more focus than normal as it will be the first time we’ve seen this data since October 24th. In addition, recent Fed speeches have reintroduced inflation concerns as a reason to be patient when it comes to additional rate cuts. None of this guarantees fireworks, but at the very least, it’s the last potential source of fireworks this year as far as econ data is concerned. 

Market Movement Recap

08:37 AM Modestly weaker overnight. MBS down 3 ticks (.09) and 10yr up 2.6bps at 4.167

10:42 AM Back near unchanged levels. MBS unchanged and 10yr up only 0.3 bps at 4.144

02:39 PM Bouncing back a bit. MBS down 1 tick (.03) and 10yr up 0.7bps at 4.148

Wednesday is largely a placeholder as 2025’s relevant trading days evaporate. Apart from the year-end influences on the 29th-31st, Thursday’s CPI arguably represents the last opportunity to trade big ticket econ data until the early January jobs report. CPI has stepped in to fill the shoes that yesterday’s jobs report was apparently unable to fill. Specifically, it will round out the first half of the Fed’s next round of rate cut deliberations in late January. As a placeholder, today’s trading is meaningless if yields remain under 4.20 and above 4.10.  With a modest morning recovery bringing yields to 4.10.

The trade group’s letter to FHFA Director Bill Pulte pointed out that lenders were facing credit report price hikes for four straight years.

New-home purchase activity rose 3.1% year over year, but dropped 7% from October, the Mortgage Bankers Association said.

Michael Hutchins, the two-time interim chief executive at the government-sponsored enterprise, will remain with the company in his role as president.

Hart, who came over from Ellie Mae, starts in the position of Jan. 1, as Tim Bowler moves to a new role within ICE’s Fixed Income and Data Services division.

Higher unemployment has driven these indications of distress higher but most loans that financial institutions hold in their portfolios are still performing.

There was a decent chance that rates would have made a fairly big move today in response to the release of November’s jobs report. This is the most important economic data as far as rates are concerned and today’s was the first full release since before the government shutdown. In general, weaker employment data promotes lower rates and vice versa. While today’s jobs report was weaker on balance, it wasn’t weak enough to unequivocally shift the narrative of a labor market that is merely cooling in a gradual and manageable way. The average lender moved back down to levels that were close to those seen last Thursday. In the bigger picture, rates are in a consolidation pattern inside the same relatively narrow range seen since early September. Volatility remains a risk as the week progresses. If there’s one additional report the market may be waiting to see before trading today’s jobs report more aggressively, it’s this Thursday’s Consumer Price Index (CPI). This is the heaviest hitting monthly inflation report and inflation is the other half of the Fed’s rate-setting equation.

Unemployment Not High Enough For a Full-Fledged Rally

If the only metric from this morning’s jobs report was the uptick in unemployment from 4.4 to 4.6%, and if that was the last of this week’s big ticket econ data, it wouldn’t be a surprise to see a more aggressive rate rally. As it stands, unemployment was tempered by a higher participation rate and less dire unrounded numbers (taken together, these actually made unemployment closer to unchanged).  Add in stronger payroll growth, a surge in core retail sales, and the need to wait and see how Thursday’s CPI comes out, and the choppy, lackluster rally is easier to reconcile.

Econ Data / Events

ADP Weekly Employment

16.25k vs 4.75k prev

Non Farm Payrolls (Oct)

-105 vs — f’cast, 119K prev

Non Farm Payrolls (Nov)

64K vs 50K f’cast, — prev

Participation Rate (Nov)

62.5% vs — f’cast, 62.4% prev

Retail Sales (Oct)

0.0% vs 0.1% f’cast, 0.2% prev

Retail Sales Control Group MoM (Oct)

0.8% vs 0.4% f’cast, -0.1% prev

Unemployment rate mm (Nov)

4.6% vs 4.4% f’cast, 4.4% prev

Market Movement Recap

08:36 AM Modestly stronger after jobs report. MBS up almost an eighth and 10yr down 1.1bps at 4.165

09:27 AM Paradoxically modestly weaker now with MBS unchanged and 10yr up 1.3bps at 4.191

12:56 PM Back near best levels of the day. MBS up 5 ticks (.16) and 10yr down 2.1bps at 4.156

02:28 PM Leveling off at only modestly stronger levels. MBS up an eighth and 10yr still down 2.1 ticks at 4.156

If there was one metric in this morning’s data that should be helping the bond market, it’s the uptick in the unemployment rate from 4.4% in September to 4.6% in November (a new cycle high). This is mitigated somewhat by the uptick in participation rate (0.1%) and the slightly higher payroll count (64k vs 50k f’cast). In addition, BLS noted lower response rates for the household survey (unemployment rate) and a generally unknown impact from the government shutdown. Perhaps important is the fact that the unrounded unemployment rate only rose 0.13% versus the 0.2% rounded figure. Bond market volume has been predictably stratospheric, but the movement has been frustratingly flat. All in all, the jobs data simply confirms exactly what the Fed has been saying: modest ongoing weakness in labor market, but nothing catastrophic. It leaves room to focus on Thursday’s CPI as policy-setting counterpoint.