Good Wednesday AM (still the best day of the week),
CPI out today and while the Fed is watching, it is not the favorite inflation gauge. None the less, it is important and markets are certainly watching. It came in as expected at 5.4% annually with the core at 4.3%. The silver lining is that it dropped drastically from last month’s reading which gives a nod to Fed Chairman Powell’s comments about inflation being transitory. Traders would have loved to have pushed rates a bit higher, a bit further, but the selling for the moment seems to have stopped. We are still off our best yields of the summer but I would call it more at the top of the range than a breakout right now. If you are watching the MBS trades, mortgage bond prices are off today but that is a function of the monthly rollover which was 25bps or so (although this does not impact pricing). There is a 10-yr Treasury auction and more Fed speak to watch for. With the selling starting to stall, hopefully traders come back to buy some of the Treasuries they’ve shorted. We are not going to get any help from the equity markets if they continue to run up (and defy logic). The infrastructure bill, all 3.5 trillion of it, was passed in the Senate on party lines in the wee hours today. How we are going to pay for it, that I have no answer for, but I am sure we are all going to feel it somehow. Not to get political at all, I am just wondering if this feels like a double tax. We are taxed on our earnings and now having to cover the portion for the 10mm people who have decided not to work. The silver lining to this is that the Fed will need to keep rates low to not only pay for the spending but also to inch the economy along. No more soap box. It is important to watch the 10-yr yield here. If you are floating and we break above 1.40%, I would lock.
Please remain safe and healthy, make today great.