Bonds lost ground Wednesday on a hotter headline PCE print, but the damage was contained. The 10-year closed at 4.649%, up 2.9 basis points from Tuesday's close, after bouncing off 4.67% resistance more than once during the session.
Yields were sitting near Tuesday's lows right up until 8:30 AM Eastern. July PCE changed that. The core reading landed on forecast — 0.2% month-over-month, 3.3% year-over-year — but the headline came in a tenth hot at 0.2% against a 0.1% estimate, with the year-over-year headline at 3.7% versus 3.6% expected. Durable goods piled on at 1.1% against a 0.5% forecast. Bonds sold off through the morning, hit their weakest levels just after 1:00 PM Eastern, then clawed back part of it into the close. UMBS 5.5 finished at 99.53, down 0.14 on the day; the 6.0 closed at 101.48, down 0.15.
Oil was the second headwind, up roughly $3 a barrel between 5:00 AM and noon Eastern. Two negatives in one session, and the 10-year still held below Tuesday's high yields. That's the part worth noting. A market that takes a hot inflation headline and a $3 oil move and closes less than three basis points weaker is not a market in retreat — it's a market that found buyers on the way down. The 4.67% ceiling held on every test. The counterweight sits just underneath: 4.62% has been acting as a floor, a level yields touched at Tuesday's close and have not been able to push below this week.
For you as a borrower, today changed very little. Whether today looks better or worse depends entirely on which part of yesterday you compare it to — bonds improved enough Tuesday afternoon that some lenders published better rates late in the day, so against that snapshot today is slightly worse, and against Tuesday morning it's slightly better. That's noise, not a trend. Jobless claims come Thursday morning. The Fed meets September 16, and today's inflation reading is now part of what the committee weighs — core landing exactly on forecast keeps that meeting an open question rather than settling it in either direction.
— David Burson, NetRate Mortgage