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MBS RECAP: CPI Threads Market-Movement Needle

August 11, 2017
by admin

Bond markets ultimately ralliedmodestly following today’s much-anticipated CPI data. This is a departure from recent norms as the last 3 reports have generated some of the biggest reactions in each of the past 3 months. Still, the result is understandable given the lack of change in annual core inflation. For the 3rd straight month, it came in at 1.7%. Bond bulls like it because it’s still low. Bond bears like it because it’s not moving lower. Trading ensued accordingly, with multiple lead changes before things finally settled down.

At their best levels, 10yr yields were as low as 2.182. At their highs, they were 2.222–a fairly narrow range given the nature of today’s data.

Fannie 3.5 MBS ended the day up 3/32nds at 103-10. Note: the 2-day chart on MBS Live shows today’s prices lower than yesterday’s. This is due to the monthly settlement process that took place in Fannie and Freddie 30yr fixed MBS yesterday (aka, “the roll”). Push MBS delivery back a month and you push a payment back a month. That makes the trailing month a bit cheaper to buy than the month in front of it. The old front month (August) was retired yesterday and appears on the left side of the chart. The new front month (September) was always trading a bit lower than August. Were we to compare September vs September prices, we would not see the same visual drop in prices on the chart.

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