Fed’s accommodation trade takes full effect after higher inflation
Today we entered the expectation of asymmetric risk in favor of the bond market due to the recent tendency to take inflation numbers in stride. In simpler terms, this meant that a report that was close to forecast (or just slightly higher) wouldn’t necessarily need to cause the bond market to weaken, but all bets were off for a better pace. We got the best pace (4.5 vs. 4.0 core y / y) and bonds can’t help but recognize it.
The reaction function of the broader market is crystal clear. The notion of economic data as a key market driver is still valid, but the impact of the data is currently heavily filtered through the prism of Fed policy. In other words, “What is the Fed going to do now in light of this data?” When reports suggest an early cut and rate hikes, stocks and bonds do:
All that being said, the damage is minimal so far and the day is young. 10-year yields are flirting with a mere 1bp loss early in the day and MBSs hold around 2 ticks (.06) lower. This puts more emphasis on the risky afternoon event: the 30-year bond auction – or at least more emphasis than before. Yesterday’s 10-year auction suggested that bonds may not be waiting for results on the edge of their seats, but it may have something to do with the 10-year auction that has come closer. average / consensus statistics.
MBS price overview
Prices shown below are delayed, please note the time stamp at the bottom. Real-time pricing is available through MBS Live.
|Price as of 07/13/21 9:16 AMEST|
Tomorrow’s economic calendar