Bonds Bounce Back Despite Hotter Inflation Data Feel free to call it a comeback, but don't ask why it happened.  Today's bond rally is an answer in search of a question or a solution in search of a problem.  You get the idea.  There were only 2 kinds of market participants who expected a medium-big bond rally to follow a hotter CPI print: perma-bulls and lucky guessers.  Any factual, objective attempt would rely on things like a a re-flattening of the yield curve or a shift in supply/demand expectations as evidenced by a very respectable 10yr auction despite CPI and the absence of a concessionary sell-off before the auction itself.  There is also perhaps some small case to be made that CPI "wasn't that bad" considering the big drop in monthly headline inflation (0.3 vs 1.2 previously).   Econ Data / Events Fed MBS Buying  10am, 11:30am, 1pm m/m headline CPI ... 0.3 vs 0.2  m/m core CPI .........0.6 vs 0.4 y/y core CPI ...........6.2 vs 6.0  Market Movement Recap 08:47 AM Stronger overnight, but selling off sharply after the AM CPI data.  10yr up 8bps to 3.068 now and MBS down half a point.  Shorter-dated debt getting hit even harder due to its closer connection to rate hike expectations.  10:46 AM A respectable display of ground-holding or short covering in bonds with 10 yields now less than 1bp higher on the day at 2.995.  MBS are underperforming with 4.0 coupons still down 6 ticks (.19). But they could actually be doing better by the time liquidity improves. 11:56 AM MBS just turned green for the first time since CPI (although CPI losses not yet erased).  10yr down 2bps at 2.97%.  Traders rejecting the notion that today's CPI data spells certain doom on inflation.   01:10 PM Slightly higher yield at 10yr auction, but no major impact on trading levels.  10s are near domestic session lows, down 5.7bps at 2.932.  MBS are up nearly an eighth, but still plagued by illiquidity 03:34 PM Running into modest resistance at the best levels of the domestic session.  MBS and Treasuries have been sideways, for the most part, since the last update just after the auction.  Trading levels are virtually the same.