Wednesday, October 18, 2006

Its bad, but not THAT bad! Part II

A rebound in housing starts today has the bond market trading mildly weaker. This carries through on a theme I posted about yesterday, where the markets seemed poised for only bad news on the housing market. Even mediocre numbers are causing a significant reaction. I'm guessing that today's housing starts number became priced in yesterday after the NAHB report. I had opined that the NAHB report wasn't enough to warrant the sell-off we got yesterday, but if I had known housing starts would beat expectations, the sell-off makes more sense. So I guess the market traders out-smarted me. It won't be the last time.

Meanwhile, CPI turned out to be uninteresting. The core figure came in right on expectations. Worth noting the Core YoY is now 2.9%, too high for even Dr. Yellen. Since the number is right on expectations, the market isn't moving on it, but if you are bearish on Treasuries, that 2.9% figure certainly reinforces your view. I know it does mine.