Benign PPI

Have to call a spade a spade. The July Producer Price Index report was definitely tamer than expected. Headline PPI up just 0.1% on the month versus expectations for a 0.4% gain. "Core" PPI -- which excludes food and energy -- actually dropped 0.3% vs. forecasts of a 0.2% gain.

Seems a bit weird given what we know about energy prices in July, and there may be some "noise" in the numbers. Also, core intermediate goods and core crude goods were both up strong on the month and year-over-year. That's an indication of more inflation pressure in the pipeline.

But bonds definitely like the news in the early going. Long bond futures were recently up 23/32 in price. 10-year yields dropped 6 basis points.