MBS RECAP: Bond Markets Hold Early Gains through Close

Treasuries were initially a bit weaker in the overnight session, but along with German Bunds, found their footing around 7am.  MBS and Treasuries crossed into positive territory shortly after the 8am open and never looked back.

The first leg of the rally correlated with heavy losses at the stock market cash open.  The stock selling didn't translate to much in terms of bond market gains, but it helped.  After it became clear that stocks were not staging any sort of heroic comeback, it similarly became clear that bond markets weren't going to give up any more ground.

Following the 3yr Treasury auction (though not necessarily because of it), the second leg of the rally took 10yr yields down toward 1.90 and Fannie 3.0 MBS up to 102-20.  During that time, speakers from both the Fed and ECB were well-received by bond markets.  Gains leveled off before 3pm and we've seen very little movement in either direction since then.