Good Morning on this best day of the week Wednesday from your Hometown Lender,

Today is the biggest data day of the week.

CPI headline was a little hot but in line, the core was lower and much improved leading traders to think inflation has slowed down. On top of that, the Empire State Manufacturing came in dismally low. The 10-yr has dropped from 4.80% to 4.66% and a close below 4.66% allows us to get into the next lower trading channel.

Rate sheets today will be better, as bonds enjoy a relief rally that inflation didn’t come in worse.

Markets were very scared that we were going to see increased inflation with this CPI report, and today’s improvements are simply a sigh of relief that it didn’t happen. This is a temporary win that helps rate sheets move back to last week’s pre-jobs data levels we saw on Thursday.

Reprice risk on the day is moderate, the fear with any kind of relief rally like this is that we will see the gains slip away as the day goes on. We dodged a bullet here.

So did inflation come in much better than expected?

No, not really. The headline numbers came in meeting expectations, with the core numbers (pulling out food and energy costs) coming in slightly better for both the monthly and year-over-year numbers. But markets were panicked that numbers would come in higher than expectations, so even this small improvement has sparked an overreaction.

The inflation data doesn’t seem to have changed anyone’s minds about upcoming Fed rate cuts. There have only been small moves so far in the probabilities of future Fed rate cuts, with no real expected cuts to come until June… same as a couple of days ago.

Stay safe and make today great!