Stocks are a bit higher and Mortgage Bonds are trading near unchanged levels so far this morning. The Producer Price Index (PPI) was released, and the headline number was down 0.1%. This was lower than the 0.2% expected. Year over year headline PPI is up 0.9%, which was a significant drop of 0.3% from last month. The Core PPI, which strips out food and energy, was down 0.2%. This was also lower than the 0.1% expected. Year over year, Core PPI is up 1.1%, which is a decline of 0.1% from last month. Inflation on the wholesale level is still nonexistent and heading in the wrong direction.
After a big day yesterday, Mortgage Bonds are now trading in a tight range between support at the 25-day Moving Average and overhead resistance at 104.69. Mortgage Bonds tested the aforementioned resistance level earlier today and were pushed lower. The 10-year Treasury Note Yield has now been pushed beneath the 200-day Moving Average. On Wednesday we had said in our update that we thought Stocks looked vulnerable and that Bonds were setting the stage for an improved rally. We are up over 70bp from then, and up 46bp from the release of the Jobs Report last week. We can begin the day floating to give Mortgage Bonds a chance to break above resistance.