MBS Live Recap: Bond Market Preparing For The Worst

By: Matthew Graham

With no intent of drawing any parallels to Hurricane Florence, bond markets are battening down their hatches in advance of a perfect storm of data and events.  These include economic reports in the coming days (PPI, CPI, Retail Sales), a healthy dose of supply (Treasury auctions and corporate debt issuance), and the European Central Bank announcement.  All of the above must be digested and dealt with in the first full week of September--a month that often marks a shift from the trading tone seen during the summer.

If all of the above events conspire against bonds, the net effect is quite negative--easily enough to push 10yr yields up and over 3%.  It's with that anxiety in mind that bonds continued their September sell-off today.  We'll need to work our way through those events before we can identify a turning point in the selling pressure.  It could begin as early as tomorrow, but we could also be heading into the weekend on Friday wondering if we're headed back toward long-term high yields.