The Fed’s favorite measure of inflation, Personal Consumption Expenditures (PCE), showed that headline inflation increased 0.6% in January, while the year-over-year reading rose from an upwardly revised 5.3% to 5.4%. Core PCE, which strips out volatile food and energy prices, rose by 0.6% with the year-over-year change increasing from an upwardly revised 4.6% to 4.7%.

Inflation is the arch enemy of fixed investments like Mortgage Bonds because it erodes the buying power of a Bond’s fixed rate of return. While inflation had been trending lower, this report disappointed as both year-over-year readings were above estimates and moved higher in the wrong direction.