Bonds Reverse as Retail Defies the Hot Print
The bond market did something unexpected overnight. After two days of bear-steepening on a hot PPI print and a Warsh confirmation vote, yields fell across the curve into the open. The 10-year T 4⅛ 02/15/36 prints 4.441%, down 2.7 basis points from yesterday's settle, with the cash bond up 7/32 in price. The 30-year T 4¾ 02/15/56 sits at 4.995%, back below the psychological 5% line that defined Tuesday's narrative. The long bond rallied 13/32 overnight.
What flipped the tape: import prices and retail sales both came in stronger than expected, but the rates market read the data the opposite way the equity market did. Import Price Index landed 1.9% versus a 1.0% survey, with year-over-year at 4.2% against 3.1%. Retail Sales Advance MoM printed 0.5% on a 0.5% consensus, but Retail Sales Ex Auto came in 0.7% versus 0.5%, and the Control Group hit 0.5% against 0.3% expected. Strong consumer, strong import passthrough, strong everything the inflation hawks would worry about. And the curve rallied anyway.
The cleanest read: rates priced peak hawkishness into Tuesday's PPI and Wednesday's Warsh vote, and Thursday's hot data didn't add anything new. The 30-year above 5% was the cathartic level. Once the long end printed it and the Senate vote landed without surprise, the marginal seller was done. Initial Jobless Claims at 211k versus 205k survey and continuing claims jumping to 1,782k from 1,766k added the labor counterweight — the consumer is hot but the labor market is cracking underneath. Both can be true. The bond market is now pricing what comes after the inflation pulse fades, not the pulse itself.
Credit is participating in the rally, finally. US Corporate OAS sits at 75 today, one basis point tighter than yesterday's print. IG and Global Aggregate spreads remain pinned to three-month lows but credit prices are positive across the table — first day of the week the asset class is up alongside Treasuries instead of fighting them. The rates-credit dissonance that defined Tuesday's note is narrowing from the rates side, not the credit side. That's the orderly version of the gap closing.
The watch list today narrows to a few items. Empire Manufacturing and Industrial Production land at 8:30 and 9:15 — both expected to print soft. NAHB Housing Market Index Friday at 10:00. Walmart earnings tomorrow before the open are the cleanest cross-asset read on the consumer. And Powell's term ends at midnight Friday with Warsh's swearing-in following. The first speech rotation begins next week. Hammack speaks Wednesday, Kashkari Thursday. Watch for the vocabulary pivot.
The Bond Bro thesis from earlier this week — that the bond market priced the Warsh trade before the headlines — is holding cleanly. The follow-on read today is that the bond market is also pricing what comes next: the inflation pulse peaks here, the consumer cracks, and the Fed's first FOMC under Warsh has to acknowledge both. The 30-year nosing back under 5% is not a reversal of the duration repricing. It is the bond market saying the move is taking a breath, not retracing.
The headlines today are still chasing Tuesday's story. The price action has already moved past it.
Educational and macro commentary only. Not investment advice. Views are my own and do not represent any employer or affiliated entity.