More Ammo For a Hawkish Fed, But Data is at Least as Important

Bonds began the day flat but lost ground quickly after ECI came in higher than expected.  This is the latest in a string of unfriendly data for the bond market.  It proves additional ammo for the Fed to table the notion of rate cuts in 2024–something that Powell had already mentioned in his last speech.  Even before this data, there was already zero chance of a rate cut tomorrow.  As Powell is likely to remind the market, the prospect of rate changes later this year depends entirely on economic data.  On that note, Wednesday’s reports may provide just as much of a directional impulse as the market’s reaction to the Fed.  In addition to JOLTS, ISM, and ADP we’ll also get the final details on Treasury’s quarterly refunding which may include a buyback announcement.  It’s not that we necessarily expect that to cause a huge reaction, but it adds another layer of complexity to a very busy day.

Econ Data / Events

Employment Cost Index

1.2 vs 1.0 f’cast, 0.9 prev

Case Shiller Home Prices (y/y)

7.3 vs 6.7 f’cast, 6.6 prev

FHFA Home Prices (y/y)

7.0 vs 6.5 prev

Chicago PMI

37.9 vs 45.0 f’cast, 41.4 prev

Consumer Confidence

97.0 vs 104.0 f’cast, 103.1 prev

Market Movement Recap

08:35 AM MBS down a quarter point and 10yr up 5bps at 4.66 after ECI data.

11:29 AM Very sideways after initial weakness.  MBS down 7 ticks (.22). and 10yr up 4.2bps at 4.656

02:45 PM 10yr yields are up 6.3 bps at 4.677 and MBS are down just over a quarter point

03:25 PM More losses after the 3pm CME close (month-end selling).  10yr up 7.6bps at 4.689.  MBS Down 3/8

04:34 PM Going out near the weakest levels with MBS down almost 3/8ths and 10yr yields up 6.4bps at 4.678