War Headlines Cause Mid-Day Reversal

War Headlines Cause Mid-Day Reversal Bonds started the day inconsequentially weaker and picked up some gains after CPI came in a hair lower than expected at the core level. Just before noon, yields began rising and ultimately hit the 3pm close up a few bps versus yesterday. MBS were down about an eighth of a point, but it wasn't enough for the average lender to bother with a reprice. A forensic audit of the afternoon weakness leaves only one explanation: war headlines. Specifically, Trump said the U.S. would be "attacking hard again today." The market may increasingly take these headlines with a grain of salt, but it doesn't ignore them. Both oil prices and bond yields moved higher after that and there were no notable alternative explanations for the 10yr weakness although the aftermath of the 10yr Treasury auction may have caused some supply/demand imbalances that contributed. Econ Data / Events m/m CORE CPI (May) 0.2% vs 0.3% f'cast, 0.4% prev m/m Headline CPI (May) 0.5% vs 0.5% f'cast, 0.6% prev y/y CORE CPI (May) 2.9% vs 2.9% f'cast, 2.8% prev y/y Headline CPI (May) 4.2% vs 4.2% f'cast, 3.8% prev Market Movement Recap 08:41 AM Slightly stronger after CPI. MBS up 1 tick (.03) and 10yr up 0.6bps at 4.526 (down from 4.538 before the data). 11:34 AM little changed from earlier levels. MBS up 1 tick (.03) and 10yr roughly unchanged at 4.519 11:55 AM Some volatility after Trump comments on attacking Iran. MBS down 1 tick (.03) and 10yr up 1bp at 4.529 02:55 PM Bouncing back from weakest levels. MBS now down 3 ticks (.09) vs 6 ticks (.19) earlier.  10yr now up 2.3bps at 4.541 vs intraday highs of 4.559