MBS Week Ahead: Strongest Bond Market in Over a Year Tuned in to Stocks

The tendency for bond yields to move in concert with stock prices had been spottier before September's FOMC Announcement, but has been over since then.  At the beginning of October, we discussed the "new quarter" tradeflows out of stocks and into bonds as one of the key components of a strong rally in Treasuries and MBS. 

To say that trend has continued as the month progresses would be an understatement, but now something "different" is happening.  The way I've been alluding to this phenomenon is to say that bond markets don't want to miss out on a good old-fashioned stock market rout.  They want to be there if stocks actually make the big corrective turn that everyone has been talking about for months as stocks continued to soar.  But now it looks like bonds might actually get their chance.

The takeaway from the chart above is that stocks are now selling off in a way that hasn't been seen at all in the past 16 months.  One could argue that such a sell-off hasn't been seen in over 3 years.  Point being: it's big enough that bond markets can't ignore it and are certainly benefiting from the tradeflows rushing out of equities and looking for safer havens.  As of early Tuesday morning, it's been enough to get 10yr yields all the way back down to the most aggressive edge of their long-term trend.

We can assume that these bigger-picture tradeflow considerations will continue to trump the pittance of data we get this week.  Today (Tuesday) has nothing at all.  Wednesday has the week's only top shelf report with Retail Sales at 8:30am.  Data continues on Thursday and Friday with what would historically be a decent line up of reports, but again, in the current case, it may just come down to the tradeflow snowball rolling wherever it may.