Treasury yields have continued to grind lower, extending the rally to a fourth consecutive trading session as investors position cautiously ahead of key inflation and labor data. The move has been constructive for rate markets, with agency MBS prices nearly 8/32nds higher today, helping to push primary mortgage rates meaningfully lower after several choppy weeks.
Today’s data offered a mixed signal for markets. Retail sales came in weaker than expected, reinforcing the narrative of a consumer that may be losing momentum as financial conditions tighten. At the same time, inflation pressures remain stubborn, with both the Import Price Index and Export Price Index printing hotter than forecast—underscoring that global price pressures have yet to fully cool.
Attention now shifts to the remainder of the week, with tomorrow’s January employment report setting the tone for risk markets and rates, followed by Core CPI on Friday, which will be the most critical input for near-term Fed expectations. Together, these releases will determine whether the recent rally in bonds has legs or proves to be another head fake in a still-volatile rate environment.
