PPI may not be as heavy a hitter as CPI on average, but one could make a case for this week being one of the rare exceptions. Strikingly, PPI managed to HELP bonds despite the core annual number coming in much higher than expected. The catch is that January's numbers were in line with expectations. More importantly, the components of the PPI data that flow through to PCE inflation suggested bigger drop than expected when we get that data in 2 weeks (core PCE now seen around 0.25% for January as opposed to 0.35% before PPI). Today's rally didn't play out all at once like yesterday's sell-off. It gathered momentum heading into and out of the conclusion of this week's Treasury auction cycle. Nonetheless, PPI deserves most--if not all--of the credit for turning the tide.
Modestly stronger overnight and gaining more ground after AM econ data. MBS up 6 ticks (.19) and 10yr down 5.8 bps at 4.567
12:54 PM
Additional gains into the 30yr bond auction time frame. MBS up 3/8ths in 5.5 coupons and 10yr down 9.2bps at 4.533
03:09 PM
More gains into 3pm, but bouncing a bit since then. MBS up 13 ticks (.41)
Lock / Float Considerations
Not so fast, CPI! Thursday's PPI data--despite being as-expected for the month--suggested lower PCE inflation (to be reported in 2 weeks). This helped push back significantly against Wednesday's CPI driven spike, and went a long way toward bringing risk/reward back to a more neutral stance for those making lock/float decisions.
