MBS RECAP: Bond Markets Holding up Well Against Stock Market Strength; MBS Better Still

It turned out to be an exceedingly uncomplicated day for Treasuries by the time US trading hours rolled around.  Before that, yields moved sharply higher in the overnight session after news of potential ECB corporate bond buying.  This isn't something that's currently on the table for discussion in the upcoming meeting, but multiple sources say it's something the ECB has worked on.  Given Germany's opposition to sovereign debt buying combined with the need for the central bank to "do as much as possible," it definitely makes sense to many market participants as a legitimate possibility.

Most of the damage was done by 8am and all of it was done by 9am.  From there, 10yr yields went no higher for the rest of the day.  Incidentally, this resulted in the highest marks of the past 3 days have all occurred at 2.23% (or 2.225, 2.229, and 2.227 before rounding).

Once again, we saw bond markets hold up well in the face of stock market strength.  That makes today a bit mixed in terms of blessings and curses.  On the one hand, the trend continues to be negative leading away from last week's surge.  On the other hand, it's a lot less negative than the previous stock/bond correlation would suggest--a potential clue about longer-term underlying resilience around current levels.

Beyond that, MBS outperformed Treasuries to end the day at nearly unchanged levels.  Unfortunately, rate sheets weren't quite as 'unchanged' as prices turned out to be. 

(note: "mortgages" in the chart above is an inverted chart of MBS prices in order to observe the correlation with Treasury yields)