MBS Live Morning: Stocks, Bonds, and Rate Hike Expectations Reacting to CPI; MBS Roll

Both on the headline and core ranges, April’s Consumer Price Index (CPI) got here in hotter this morning.  This was a high-consequence report for bonds, they usually’re performing the half with a giant reversal of in a single day positive factors and early weak spot in MBS.  Stocks have been additionally swept up within the implications for Fed coverage (i.e. larger inflation = tighter Fed coverage = unhealthy for each shares and bonds).

As for the info itself, the report was blended.  Annual numbers really declined from earlier readings (headline down to eight.3 from 8.5 and “core” down to six.2 from 6.5), however this has extra to do with “base effects.”  That means a better inflation month final March simply fell out of the year-over-year calculation. In addition to that “yeah but,” inflation fairly merely stays in disconcerting territory.  

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Fed Funds Futures shortly moved to cost greater than half of one other 25bp hike by the tip of the yr (17bps, particularly), however merchants did not actually see any main modifications to the implications for June’s Fed assembly.

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On a sidenote, it is ROLL DAY for UMBS 30yr mounted coupons.  This signifies that the left aspect of a 2 day chart on MBS Live exhibits coupons that settle in May and the suitable aspect exhibits coupons that settle in June.  This has the impact of constructing at this time’s losses look visually bigger than they really are.  The value desk in MBS Live, as an example, at the moment exhibits the precise degree of weak spot at -6 ticks (-.19),  however the chart exhibits a drop from yesterday’s shut of 16 ticks (.50).  The latter is misguided as a result of it compares June coupons to May coupons.  Read extra on the roll HERE.

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