MBS RECAP: Old Friend Spoils What Might Have Been a Calm Day

Bonds began the day in relatively unchanged territory versus yesterday's close and soon encountered the slightly stronger CPI data (2.2 vs 2.1% for CORE CPI). This gave the appearance of selling pressure for a few minutes, but as expected, it was mild and temporary. In fact, 10yr yields and MBS were at their best levels of the day less than an hour later. 2yr yields, however, didn't see the same sort of bounce. One might argue that the CPI data is only important inasmuch as it failed to give the Fed a clear green light to cut by 50bps at the next meeting (something a lot of people think might actually happen). The 2yr weakness combined with the 10yr recovery brought the yield curve dangerously close to 0.00.... a level that doesn't matter in the slightest except that a lot of people...(read more)

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