MBS Day Ahead: First Treasury Auction; Not The Price Index You're Looking For

Posted To: MBS Commentary

Although today's 8:30am data has the trigger phrase "price index," it's not the price index you're looking for. That will come tomorrow in the form of the Consumer Price Index (CPI). Today's Producer Price Index (PPI) measures the shift in input costs at the wholesale level. PPI only ever matters if it coincides with an increase in CPI, so markets just assume wait for CPI when it comes to bigger bond market reactions. PPI is only really useful if it's doing something so big that investors can't help but assume it will translate to a move in CPI. Even then, past precedent doesn't suggest a ton of correlation--unless it's between oil prices and producer prices. As such, the day is beginning with PPI at the highest levels in years but without any incremental...(read more)

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