MBS RECAP: Uneventful Day Leaves Bond Markets Fairly Flat; MBS Underperform

As the last few trades of the day trickle in, MBS are set to close almost perfectly in line with yesterday's closing levels.  Even before that, there hasn't been much movement to speak of. 

The hand-off from European trading was slightly negative this morning, but both MBS and Treasuries stayed inside yesterday's weakest levels.  Producer Prices came in "healthy," and while some credited that data for additional weakness in the morning, I'm not seeing it.  Bonds were already on an upswing and we're talking about 2.560 to 2.567 in 10yr yields.

It's a bit easier to make a case for weaker Industrial Production at 9:15am as a modest benefot to bond markets.  More than anything though, slumping stocks and 'asset allocation' flows (money managers selling stocks to buy bonds) helped keep the range contained for MBS.

Despite the contained range, however, MBS struggled a bit compared to Treasuries.  10yr yields are near their best 2-day levels while MBS are roughly in the middle of theirs.  That underperformance has been a fairly consistent theme for nearly 2 weeks now.

Yellen's second day of congressional testimony provided nothing more than a few good laughs.  There were no noticeable market reactions.  The calendar provides a bit more to go on tomorrow with Jobless Claims, Housing Starts, and Philly Fed.