The UMBS 6.00 Coupon opened Monday of last week at 101-20 and closed Friday at 101-22. Last week, CPI data revealed that inflation eased marginally in April. US consumer prices rose 0.4% last month and headline CPI increased 4.9% annually, which was in-line with expectations. Although prices remain well above the Fed’s 2% target, this reading is the latest sign that pressures aren’t worsening and reinforces the case for a pause next month. Core-inflation remains high and rose 0.4% M-o-M and 5.5% Y-o-Y, exactly where it was in 1/23. However, the Fed Funds rate now finally exceeds the inflation rate, which may indicate that the Fed will keep rates where they are for a while and halt hiking.

Later in the week, PPI and jobs followed suit. The producer price index showed an increase of 0.2% in April with an annual increase of 2.3% vs 2.5% forecast. Initial jobless claims printed higher than expected at 264,000 vs forecast of 245,000 and marking the highest level of claims since January 2022. Continuing claims also rose to 1.813 million from 1.805 million. Friday lost a little ground with Consumer Sentiment showing a 0.2% uptick in 5-year inflation expectations and no meaningful improvement in 1-year expectations.

This week is filled with additional Fed official speaking engagements as investors continue to gauge the Fed’s next moves.  Fed President Bostic said that he doesn’t foresee rate cuts at least through 2023, even if there’s a recession. Investors are watching and listening closely as Fed officials make remarks this week and additional economic data is released. Various Fed Presidents will speak this week including John Williams, Lorie Logan, Loretta Mester and Raphael Bostic.  Recent economic data suggests that the Fed could slow or pause rate hikes soon, however some Fed officials believe rates may go higher still as the Fed continues to fight inflation.  Retail sales numbers rebounded in April due to strong online sales and a surge in auto purchases.  Overall retailers saw a 0.4% increase in April, but the data point still fell short of the 0.8% rise forecasted.  Markets are obviously watching the debt ceiling debate closely as the deadline approaches.

Following Friday’s trend, MBS are down slightly this morning, the 10-Year Treasury is at 3.496% and UMBS 30-Year 6.00 Coupon at 101-20+.