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Today’s calendar may have contained what the Fed refers to as its preferred inflation metric (Core PCE price index), but it was never likely to be a big market mover due to the market’s established pattern of trading inflation surprises immediately after the CPI data (which comes out 2 weeks earlier).  As such, it’s no surprise to see no reaction to PCE this morning.  In fact, bonds are stronger despite PCE suggesting a sell-off.  The only “yeah but” would be that the curve is more inverted (2yr weaker than 10yr) which is, in fact, in line with the PCE result.  Nonetheless, the easiest case to make for market movement guidance would be via the much bigger swings in UK bonds, right at the EU open and then moving back up in the US morning hours.

In the bigger picture, we’re still viewing this week’s volatility as helpful in the bond market’s efforts to find a ceiling for the recent selling spree.  Establishing the bottom of the current trading range is a task best left to data in the week’s ahead.  Specifically next week’s ISM/NFP combo and then CPI the following week.  2.72% remains a bit sticky so far this week (bounces near there on 4 of the 5 days), but momentum metrics would definitively shift if we end the day at current levels. 

Month-End Selling Keeps Rates Range-Bound

You’ve perhaps heard of month-end bond buying?  How about month-end selling?  We had some of the former earlier in the session with a reversal toward weaker levels at the 3pm CME close.  PCE inflation data wasn’t traded this morning.  Early cues came from overseas.  Late cues look more position-driven.  Even before that weakness, bonds rejected another opportunity to move below 3.72%, which increasingly looks like the bottom of the range unless next week’s data is convincingly downbeat.

Econ Data / Events

Core PCE y/y

4.9 vs 4.7 f’cast, 4.7 prev

Core PCE m/m

0.6 vs 0.5 f’cast

Headline PCE m/m

0.3 vs -0.1 f’cast

Chicago PMI

45.7 vs 51.8 f’cast, 52.2 prev

Consumer Sentiment (final)

58.6 vs 59.5 f’cast

Market Movement Recap

08:33 AM British Gilts rallied 20bps overnight, making the 6-8bp gain in US 10yr yields possible.  10s are now down 5.5bps now and MBS are up a quarter point.

11:06 AM 2-way volatility after AM data and now some organic weakness eroding the gains.  10yr down 3.7bps at 3.742.  MBS up 7 ticks (.22). 

01:43 PM More weakness now after UK bonds close for the day, but perhaps not because of it.  Month-end tradeflows look to be hitting as well.  10yr up to 3.766.  MBS down more than a quarter from the highs, but roughly unchanged on the day.

02:52 PM New Highs for 10yr yields ahead of month/quarter-end closing bell at 3pm.  Now roughly unchanged at 3.778.  MBS down 5 ticks (.16) on the day and 3/8ths of a point from the mid-day price plateau.