Bonds gave back an early PCE bounce Wednesday. UMBS 6.0 closed at 98.03, down 16 cents, and the 10-year settled at 5.287%, up 5 basis points. The average 30-year fixed rose to 7.60%, another long-term high.

The inflation report looked better than it was. Core PCE rose 0.2% in August against a 0.3% forecast, and mortgage bonds climbed to 98.34 by the 9:30 AM ET open. But the unrounded figure was 0.247%, a hair from rounding up, and most of the drop in the annual rate to 3.0% came from a change in how the index is calculated, not from prices cooling. The rest of the morning's data ran hot. ADP private payrolls rose 90,000 against 70,000 expected, and final second-quarter GDP came in at 2.2% against 1.5%. Selling started at the open and ran into the afternoon. The 10-year briefly traded above 5.30%, and mortgage bonds sat a quarter point lower at the worst of it before recovering a dime into the close. Long-term Treasuries took the most damage: the 30-year bond rose 6 basis points while the 2-year rose less than 2. Quarter-end positioning may have added to the pressure, but that won't be clear for a few days.

For borrowers, rate sheets priced off the morning bounce didn't last. Many lenders repriced worse by midday, and mortgage rates are now up six weeks running. The Fed debate is still hold versus hike, and today's soft headline number takes only a little pressure off an October hike once the methodology change is stripped out. Jobless claims land Thursday and the September jobs report Friday, both at 8:30 AM ET. Rates need weaker economic data or a real, sustained drop in inflation to come down meaningfully, and neither showed up today.

— David Burson, NetRate Mortgage