Limited Follow-Through After Shockingly Big Miss

If you told the average trader that today’s core CPI would come in at 2.6% vs 3.0% year over year, they would have expected a much bigger reaction than we saw today. Ironically, the size of the miss may be one of those reasons. It’s so far outside the realm of expected possibilities that traders immediately assumed the presence of legitimate issues with November’s data collection. Nonetheless, it was worth a moderate extension of the overnight rally.

Econ Data / Events

Continued Claims (Dec)/06

1,897K vs 1930K f’cast, 1838K prev

Jobless Claims (Dec)/13

224K vs 225K f’cast, 236K prev

Philly Fed Business Index (Dec)

-10.2 vs 3 f’cast, -1.7 prev

Philly Fed Prices Paid (Dec)

43.60 vs — f’cast, 56.10 prev

y/y CORE CPI (Nov)

2.6% vs 3% f’cast, 3.0% prev

y/y Headline CPI (Nov)

2.7% vs 3.1% f’cast, 3.0% prev

Market Movement Recap

08:47 AM Rallying after CPI data. MBS up a quarter point and 10yr down 4.4bps at 4.115

12:18 PM Off best levels. MBS still up 5 ticks (.16) and 10yr down 3.1bps at 4.127

02:56 PM MBS up 7 ticks (.22) and 10yr down 4.2bps at 4.117

Great news for bonds on the inflation front this morning: Core annual inflation came in at 2.6% compared to a 3.0% forecast and 3.0% last time.  It’s the lowest reading of the cycle and the first attempt to break below the stagnant sideways/elevated levels that have prevented more aggressive Fed rate cuts. Despite those facts, the bond market is only rallying moderately (but certainly rallying). Traders could be skeptical about the thoroughness of post-shutdown data collection, or this could foreshadow year-end bearish biases. Whatever the case, the data itself was better for bonds than anyone could have hoped for (and better than any economist predicted).  NOTE: there is no month-over-month data due to the non-existence of October CPI.

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A federal appeals court agreed to have the full bench rehear arguments by the Consumer Financial Protection Bureau’s union about whether the Trump administration planned to gut the agency through mass firings.

The Treasury official renewed a pledge to avoid hurting how mortgages trade in a Fox Business News interview as a new study highlighted one way to do that.

The deal significantly grows United Wholesale Mortgage’s servicing portfolio, and it will increase the float on its common stock, making it more investable.

Mortgage activity fell 3.8% from one week prior for the week ending Dec. 12, led by a 4% drop in refinance applications, the Mortgage Bankers Association said.

The bill’s signing comes weeks after one of the most notorious NTRAP providers agreed to legal settlements in two states, nullifying existing contracts.

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Mortgage rates were perfectly unchanged compared to yesterday’s levels for the average lender. This wasn’t a huge surprise considering the absence of any high stakes economic data, but tomorrow could be a different story. Rates are driven by bonds and the economy is one of the primary sources of motivation for the bond market. In general, the two reports that get more of the bond market’s attention than any others are the jobs report and the Consumer Price Index (CPI).  The jobs report obviously pertains to the labor market. This is the report that came out yesterday and although it didn’t cause a big move in rates, bond volume was nonetheless at its highest levels since the last jobs report on November 20th.  CPI pertains to inflation. Recent Fed speeches have expressed slightly more concern over inflation’s impact on the rate outlook.  Longer term rates (like mortgages) also take cues from inflation. If CPI is higher than expected, it tends to put upward pressure on rates and vice versa. This will be the first CPI report since the government shutdown (the last report came out on 10/24/25) which makes it all the more likely that rates will react to any major departure from expectations.