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KEY INFLATION INDICATOR JUMPS 3.1%, HIGHEST SINCE 1992

The 10 yr and MBSs opened a little soft this morning. The 10 yr note yesterday increased 2 bps, MBS prices declined 18 bps. On Wednesday, the 10 yr hit solid resistance at 1.55%, since then back slightly above 1.60%, where it sits quietly and likely will be through today ahead of the long weekend.

At 8:30 am ET, April’s personal income and expenditures; income fell 13.1% generally as expected with stimulus checks running down, March’s personal income with the checks flowing increased 20.9%. Personal spending expected +0.6% increased 0.5%. The PCE inflation data generally as expected, +0.6% m/m and +3.6% yr/yr. Core PCE +0.7% as expected, yr/yr +3.1%. Before 8:30 am, MBS prices were down 8 bps, by 9:00 am back to unchanged, the 10 yr at 1.62% +1 bp.

At 9:30 am ET, the DJIA opened +153, NASDAQ +48, S&P +13. 10 yr at 9:30 am 1.60% unchanged. FNMA 2.0 20 yr coupon at 9:30 am unchanged from yesterday, and -9 bps from 9:30 am yesterday.

At 9:45 am ET, the May Chicago purchasing mgrs. index, expected at 70.0, the index as reported 75.2 from 72.1 in April.

At 10:00 am ET, the final May U. of Michigan consumer sentiment index was expected at 83.0, as released 82.9.

The White House is expected to release President Biden’s first budget proposal today; new details on how the administration would implement plans to spend $4.5T and increase taxes over the coming decade. According to what we read, he will also propose the 2022 fiscal budget that begins in October at $6T, including $1.52T in discretionary spending for the military and domestic programs, including more funding for education, healthcare, research, and renewable energy. Plans for spending over the next decade on infrastructure and social programs, such as paid family leave and universal preschool, will affect federal debt and deficits. Based on his proposal, the bean counters now estimate debt as a percentage of the annual gross domestic product would within a few years exceed the level at the end of World War II and climb to 117% of GDP by the end of 2031. That would be up from about 100% this year. Government spending is on the way higher under the Biden plan, but it isn’t likely to go down as proposed, deals are being negotiated between the parties, and the House and Senate are closely divided. The administration thinks much of the spending will be offset by higher taxes.

Yesterday Janet Yellen, Treasury, shot across the bow that the US budget is under-funded. She believes the US needs to spend more, which is counter to what Republicans believe but does fall in line with Jerome Powell’s comments that more fiscal spending is needed. Yellen said government spending is operating on a budget that is more than a decade behind the times. “Our team has done valiant work implementing these programs with the resources at our disposal,” Yellen said in prepared remarks to the subcommittee on financial services and general government committee on appropriations. “But we cannot continue to be good stewards of this recovery – and tackle the new bodies of work that Congress assigns to us in the years beyond – with a budget that was designed for 2010.” Those comments should provide ammo for Democrats in the negotiations.

That’s it, folks, nothing left today but the countdown to the 2:00 pm ET close. By noon many traders and investors will have left the building. This week there has been no change in treasuries or mortgages, lots of ink and media, but the 10 yr likely will end this short day unchanged from last Friday.

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