MBS RECAP: Expected Amount of Volatility But Not For Expected Reasons

Heading into this week, we looked to today as the biggest potential source of volatility owing to the release of the Consumer Price Index (CPI) and the end of the Treasury auction cycle. The volatility definitely showed up, but those two factors were at the bottom of the list of today's market movers. CPI was mostly ruled out as a market mover after Fed Chair Powell talked about inflation on Tuesday. I talked more about why that was the case in the Day Ahead . Deceptively, yields started spiking a few minutes after CPI. Was I wrong to downplay its significance? I definitely thought so for a moment, even though it wasn't logical, but looking at other markets it was easy to see the move originated in Europe (as discussed in THIS update ). Europe would continue to have an impact through...(read more)

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