Bonds experienced a moderate recovery after the release of the core monthly CPI report, with yields holding steady despite initial selling pressure. The expected increase in inflation, which led to a sharp rise in 10-year yields and a decline in mortgage-backed securities (MBS), was met with a mix of expectations.
The core annual CPI reading surpassed the forecast, rising from 3.1% to 3.3%, while the monthly rate increased by 0.4%. However, after the initial push, bonds managed to avoid major selling pressure and instead settled into relatively flat territory. This is partly due to the modest recovery in yields, which rose by 10.7 basis points (bps) to 4.635.
MBS also experienced a decline, falling almost half a point, as investors adjusted their expectations following the CPI release. Despite this, bonds maintained a stable trajectory, with 10-year yields remaining close to their levels seen just before the report was released. The calm in bond markets suggests that market participants are taking a cautious approach, assessing the impact of inflation on interest rates and economic growth.
Source: https://www.mortgagenewsdaily.com/markets/mbs-recap-02122025