Good Thursday AM,

While the Core CPI came in a bit better than expected and down from last month, the headline CPI number was once again frightening. Both stocks and bonds are reacting accordingly and are not good this morning. Typically a selloff as we are seeing this morning, and overall in the stock market, would lead to a bond rally. The challenge is that when the stock market is reacting to high inflation, bonds tank as well. At this point Mortgage Bonds must hold their current support level (which they are not). If they do not, we could see another 40-50 bp drop in price. The ten-year Treasury has blown through its last level on the Fibonacci ladder and is not likely to test the former high at 2.05%. We are seeing the same problem as Europe, as the ECB decided today to wind down their asset purchases more quickly that expected citing higher inflationary concerns (mostly over the price of oil driven by Russia).  It is volatile. Don’t try to catch a falling knife.

Please remain safe and healthy.