MBS RECAP: Bond Markets Dirty Secret About the Past Three Days

Bond markets have a secret.  Or rather, we have to pretend like it's a secret in order to turn something very boring into something remotely interesting.  But this way, at least if your friends and colleagues attempt to draw any overly-firm connections between market events and trading reactions, you can fire back with this:

Bond markets have simply been bouncing back from Friday's strong rally.  When you see the 5-day chart of MBS and Treasuries, it's fairly shocking.  How silly could we have been to infer any significance in the day to day events when they're now so obviously minor course corrections against this bigger picture?

Even the two times that rates gapped away from the central trend have seen a sober and definite return--almost as if they were compelled to get back in line.  That's not to say that the day-to-day events haven't actually been motivating some of the smaller movements within the broader trend, just that we can't be sure if the broader trend wouldn't have left us in the same spot today regardless.

Today's short-term market mover was the FOMC Minutes.  This wasn't too complicated actually.  It suggested the Fed was just a bit more ready to move toward rate hikes and portfolio reduction than the most recent FOMC Announcement might have suggested.  Bottom line, the Fed sees the improvements in some of the economic data, and while it's still not good enough for them, they can see that it might be good enough some time soon. 

Bond markets lost a decent amount of ground following the minutes, but gravitated back to the central tendency of the trend by the close.    MBS ended up going out the door just a tick over an eighth point weaker.