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CPI inflation miss lifts Treasuries, but 10-year losses fade
June inflation data swung bond pricing intraday, with 10-year yields down 7.6 bps at one point before ending the session only a few bps lower.
Mortgage News Daily reports that June inflation, as reflected in the CPI report, came in much lower than forecast, marking the biggest miss in over a year. The bond market, focused on inflation expectations, responded with an immediate rally in Treasuries.
The outlet points to three main factors behind the move. First, the decline helped shorter-term rates most, with Fed Funds Futures showing the end-of-year implied rate falling by an eighth of a point, or the equivalent of roughly half a rate hike. Longer-dated bonds were expected to lag because they map less directly to near-term Fed rate implications.
Mortgage News Daily also cites energy and timing effects. Fuel prices had bottomed in June, but then moved back up quickly, muting some of the early advantage, and gains tied to falling fuel prices later reversed after the CPI release around the 11am hour. In its trading snapshots, the outlet notes the 10-year yield was down 7.6 bps to 4.541% and later down 2.9 bps to 4.587%, while MBS rose 11 ticks, about 0.34.
The story adds that mortgage-backed securities were expected to do more as they caught up from the strongest levels, though it attributes the potential shift to a mix of war-related headlines and inflation commitments referenced as “Warsh inflation” in the market commentary.