MBS RECAP: Bond Markets Weaker Overall, but MBS Outperform

Compared to the 9 ticks of price weakness in 10yr Treasuries (+3.1 bps), Fannie 3.5 MBS were only off 5 ticks and Fannie 4.0s just 3 ticks in the final hour of trading.  The day began on a sour note for bond markets as overnight weakness was met with just a bit more domestic-session weakness. 

In the absence of any actionable headlines or economic events, bond markets instead continued the correction off the lower end of the yield range that began at the end of last week.  A surge in equities was fairly detached on a moment-to-moment basis, but was consistent with the 2-day theme (in other words, stock prices and bond yields weren't glued to each other throughout today's session, but have otherwise generally moved together since Friday morning.

Corporate bond hedging (where large companies issuing debt will take a short position in Treasuries in order to lock-in their rate of return--often based on Treasury yields plus a margin--between the time the deal is announced and subscribed) was likely also a drag on Treasuries as several big deals were brought to market.  This isn't uncommon when Treasury yields began rising from recent lows, and also helps explain why Treasuries were incrementally weaker than MBS today.