Mortgage Bonds are up 6bp in the middle of their trading range, and still riding the "Up Escalator". Bonds received a little help this morning from a weaker Stock market, as well as an interesting take on the Consumer Price Index (CPI).
CPI for the month was reported in line with expectations. But on a year over year basis, Core CPI was 2.2%, which is up from 2.1%. Although slightly higher inflation is normally a negative for Bonds, prices are slightly improved on this reading because Traders viewed the higher Core CPI as a reason for the Fed to hold off on another rate cut. Because a Fed rate cut makes it less expensive for businesses to run their business, and also less expensive for consumers to spend - this news is hurting Stocks, causing proceeds from Stock sales to be parked over into Bonds, which in turn is helping to bid Bond prices higher.
The headline CPI on a year over year basis was reported at 3.5%. If you recall yesterday, Ben Bernanke said going forward the Fed will be watching and forecasting the headline CPI in addition to Core CPI as "Ultimately, households and businesses care about the overall...rate of inflation," - so we will also look more closely at the trend of overall inflation as well as the price of oil which now hovers at $94 a barrel and see how this may affect future Fed monetary policy.
Initial Jobless Claims jumped by 20,000 from the prior week to 339,000, which was above expectations of 325,000 and the highest level since the week of October 13. This is a number that shows some weakness in the labor market - but we'll need to watch upcoming reports to see if this is a beginning of a trend, or just a blip.
The often volatile NY Empire State Manufacturing Index showed manufacturing activity jumped in the New York Region during November with a reading of 27.4, significantly higher than the consensus estimate of 18.0. Bond prices have shrugged off this volatile reading as they await the Philadelphia Fed Index to be released at Noon ET today.
Bond prices continue to ride an Up Escalator higher - meaning that while there may be some short-term price weakness from time to time, the overall trend remains higher. For now, we will continue to float and enjoy the improving pricing - but as always be ready to take action. Many of you longtime subscribers have seen in the past how quickly Bond prices sell off and move lower once they step off the Up Escalator.
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