Good Tuesday A.M.,

Succinct insight from Dan Rawitch this a.m. “PPI came in a bit hot. The market will fear that this could spill over into the CPI number and then give the FED the fuel they need to raise rates in December. Tomorrow’s CPI and retail sales numbers may have a big effect on bonds. The DOW is down right now and this will help somewhat. While it’s possible that we see selling in Mortgage Bonds, I do see the better chance that they will improve a bit from here. This of course is highly dependent on tomorrow’s news. I would play defense until we see CPI and Retail sales.”

Additionally, this morning we received the NFIB Small Business Optimism data for October which came in below expectations. Chicago Fed President Evans spoke overnight stating that the Fed should “rethink” its policy framework and that missing their 2.00% inflation target presents a credible challenge. Moreover, St. Louis Fed President Bullard spoke this morning questioning the Fed’s decision to increase rates with inflation below their target.

Bottom line for me is the tax bill. If the House bill is adopted, bonds will take a hit, if it’s the Senate version, bonds will trade better. Still a lot of work to be done on that front. The 10-yr is at 2.38% (anything below 2.40% is important) and Mortgage Bonds are +5bps. We will see how the economic data impacts the market but as we are seeing today (despite a hot PPI report), bonds do have support at current levels.

Make today great!