MBS RECAP: Unraveling the Complex Mysteries Behind Today's Market Movement
Bond markets sold off today because they rallied so hard earlier this week. That is all*.
I mean, we could sit here and attempt to assign significance to every little market-moving possibility as if it mattered, but as far as today is concerned, that's more than the movement deserves. That seemingly oversimplified cop-out sentence at the top is what's really going on.
On big selling days like this, it's always good perspective to step back and look at the long term trend. If we find ourselves in the midst of an aggressive rally, days like today mean so much less than they otherwise would--ESPECIALLY if they follow days like yesterday where a wholly unexpected tape bomb fuels a wholly unexpected extension of a flight-to-safety that looked like it had run its course by Wednesday morning. Incidentally, even without yesterday, the long term trend still provides plenty of reason for periodic pull-backs.
The chart above also points out what are probably the 2 most important inflection points in the upper 1% yield range for 10yr Treasuries. Given that the longer term move is as aggressive as it is, and that it suddenly found itself at that same 1.70 level that turned away the initial rally into the 1% range back in 2011, AND given that bonds have rallied 13 out the past 15 days (!), it's REALLY not too surprising to see a pull back at technical levels, ESPECIALLY when it coincides with a similar pull-back at a similarly important technical level for stocks on a week with very well-connected stock/bond correlation.
Bottom line, these moves fit just as easily in a continued downtrend. If this bounce happens to materialize into more weakness next week, we wouldn't know that based on anything we saw this week.
Keep in mind that it's a 3-day weekend for markets with Monday January 19th being a bank holiday (Martin Luther King Jr. Day).
*Yes, I'm aware of the following anecdotal market-movers:
- CPI and Consumer Sentiment
- Greek Bailout extension offer
- Secret not-so-secret meeting with Draghi, Merkel, and Shaeuble in which Draghi outlined ECB QE
- NY Post's hacked twitter account and the fake tweets that potentially fueled programatic trading based on tweet-reading algorithms
- Ongoing rebound in Oil (though I'd continue to boycott oil as a root cause)
- Big bounce in Yen/$ and other various currency market drama stemming from Swiss National Bank aftershocks
- Several Fed speeches from Williams, Bullard, and Kocherlakota
MBS | FNMA 3.0 102-17 : -0-25 | FNMA 3.5 105-01 : -0-17 | FNMA 4.0 106-24 : -0-07 |
Treasuries | 2 YR 0.4880 : +0.0680 | 10 YR 1.8310 : +0.1030 | 30 YR 2.4460 : +0.0790 |
Pricing as of 1/16/15 5:05PMEST |