MBS MID-DAY: Holding Gains Ahead of 5yr Treasury Auction

It's been a fairly uneventful, yet positive morning for bond markets.  After coming into the domestic session in just slightly weaker territory, bonds got a boost from weaker-than-expected internals in the Durable Goods report.  That means that while the headline was stronger than expected, the constituent pieces of the report painted a different picture.  In other words, the headline was skewed by aircraft and defense spending, and when that's factored out, manufacturing activity was much weaker than expected.

The cues from the economic data have been augmented by several bigger instances of buying in the Treasury Futures complex.  5 and 10yr futures particularly, have both had more than one "block trade" reported (essentially "big trades" that can act as motivation for other market participants). All this really means is that some larger accounts are buying 5's and 10's for reasons unknown.

10yr yields were close to 2.76 at 8am and moved briskly lower to 2.72 by 10:50am.  They've bounced there once and are now waiting for the next move.  MBS experienced the same sort of move with Fannie 4.0s rising from 103-25 to 104-02.  The next potentially significant event of the day is the 5yr Treasury auction at 1pm.