Surprisingly Big Sell Off Relative to The Inspiration

Bonds ended up selling off somewhat sharply today with the bulk of the blame apparently reserved for the UK/US trade deal. In fact, the pace of the selling wasn’t something we would have predicted when the details emerged this morning. This raises questions about what other motivations could be in play.  Certainly, the “precedent thesis” is relevant (i.e. what does today’s deal imply about how other trade deals may look?). The simplest way to approach it would be to conclude that tariffs will go up enough to increase inflation, but not so much as to hinder growth–both bad for bonds and for the Fed’s rate cut prospects.

Econ Data / Events

Jobless Claims

228k vs 230k f’cast, 241k prev

Unit Labor Costs

5.7 vs 5.1 f’cast, 2.2 prev

Market Movement Recap

09:16 AM Slightly stronger after AM data, but still weaker on the day.  MBS down 1 tick (.03) and 10yr down 1.3bps at 4.283

10:40 AM weakest levels of the AM.  MBS down 6 ticks (.19) and 10yr up 4.6bps at 4.316

02:46 PM sharply weaker after auction with MBS down 3/8ths and 10yr up 10bps at 4.37