Good Monday AM,

Bonds rebounding a bit from the last two weeks of an old fashioned beat down, The 10-yr recovered a bit from the overnight session and is at 1.63%, mortgage bonds +12bps. That’s ok for now but keep in mind, the bias is still to higher rates. We have seen nothing to contradict that yet, and while I think this push higher is temporary, I also know you cannot fight the tape. Stocks are up on not only inflation concerns but also that the price pressures will be born by the consumer and not the company thereby keeping profits intact. A key measure of investors’ inflation expectations has climbed in recent weeks, adding fuel to concerns about rising consumer prices. As of Thursday, the gauge known as the 10-year break-even rate suggested that the consumer-price index will rise by an annual average of 2.64% over the next decade, much hotter than the Fed wants and is mandated to (2.0%) according to Federal Reserve Economic Data, or FRED. That is up from a recent low of 2.28% in late September and the highest level since 2012. Accelerating inflation will be with us for a while and the Federal Reserve is starting to take that into account. Fed Chairman Jerome Powell said Friday that supply-chain disruptions will last longer than anticipated, keeping price pressures elevated, Nick Timiraos reports. Officials still think the recent bout of inflation will prove temporary, but they’re making contingency plans nonetheless. The Fed will “need to make sure that our policy is positioned for a range of possible outcomes,” Mr. Powell said. Officials have suggested they will announce a gradual reduction of their monthly purchases of $120 billion in Treasury and mortgage debt at their Nov. 2-3 meeting. That tapering should be complete by June, a faster timeframe than investors had originally anticipated. The week’s key data will be Durable Goods for September (Wed) and the first look at Q3 GDP (Thu). Together with the Treasury auction cycle, the tone should be sufficiently set by Thursday afternoon. From there, Friday’s PCE data will serve as an epilogue for the week–either accelerating the existing trend or forcing it to level.

Adding fuel to the inflation fire, the consumer-price index rose 5.4% in September over the previous year, the Labor Department reported. The Commerce Department is set to report a separate inflation gauge on Friday, the one that Fed officials use in setting monetary policy.

Please remain safe and healthy, make today great.