MBS Day Ahead: CPI to Set Tone Early, Auction Cycle Batting Clean-Up


Posted To: MBS Commentary

Since at least the middle of 2017, the Consumer Price Index has been in the driver's seat as far as economic data that matters to bonds. This likely has to do with the fact that inflation looked like it had finally achieved its 2% target in a sustainable way. In fact, from late 2015 through March of 2017, core year-over-year CPI was over 2% and hit 2.3% on several occasions. Then in the spring of 2017, it began declining and reported at 1.5% several times before being revised up to a floor of 1.7%. In a real way, it was this inexplicable drop in inflation that helped bonds have a much better 2017 than it looked like they would have coming into the year. Yields remained lower than expected as long as inflation remained lower than expected. That's not to say it's the only input. Of…(read more)

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