MBS MID-DAY: Corrective Bounce Leaves Bonds Slightly Weaker

With the 10yr auction coming up in about an hour, yields find themselves slightly higher than yesterday's latest levels.  Their first move overnight was to a new 19-month low of 1.864.  That served as a cue for many bond traders to book profits on previous bets that rates would move lower.

In fact, bond markets made it to 8am in noticeably stronger territory.  MBS opened nearly a quarter of a point higher (factoring out the effect of the roll) as a result.  Additionally, MBS are holding their ground more effectively than Treasuries.  Part of the reason is MBS-specific as the Fed is buying Fannie and Freddie 30yr coupons today.  There's also some Treasury-specific weakness as markets tend to build in some "concession" ahead of the auction.

There haven't been any significant economic reports to move markets.  That might not initially seem like the case depending on where you get your news.  There are far too many stories giving credit to obscure and inconsequential reports for today's market movement.  To be clear, IBD Economic Optimism, NFIB Business Confidence, and Gallup Economic Confidence are not market movers.  They all reported this morning, and there are news stories out there saying things like "bonds retreat after such and such report," but in reality, there is only coincidental correlation between the reports and movement that was already underway in bond markets.  The biggest moves of the day were completely independent of data.