MBS MID-DAY: Snowball Selling After Busy Morning of Unexpected Headlines

Unexpected headlines have given markets plenty to digest this morning.  German bond markets began pushing yields higher right from the start of the overnight session.  That was offset by strength in UK bond markets leading up to the domestic open.  Then things started getting crazy.

Mere seconds after US stock markets opened, apparent details of tomorrow's ECB QE announcement were leaked.  This--more than anything--sent interconnected shockwaves through financial markets.  Very few asset classes were immune.  All that having been said, the inspired volatility was "net sideways" for bond markets.  In other words, there were rapid ups and downs, but they resulted in no net change to trading levels.

The day's big move began at 11am and there's no satisfying explanation for it.  All we know for certain is that there was an overabundance of traders betting on lower rates (i.e. "long positions") and that imbalance was punished by snowball selling, as imbalances often are.  It merely took a bit of a push and the snowball took care of the rest.

As for the push, potential contributors include an aggressive sell-off of German debt heading into the European bond market close, an active corporate debt market (which requires some Treasury selling as a part of the hedging process), and finally, some good old-fashioned 'stock lever' as S&P's had just broken to new highs as the Treasury snowball began rolling.

Whatever the case, 10yr yields are currently trading over their important 1.84 inflection point, but not by much.  Stocks look to be at risk of having leveled-off for the day and there's at least some chance that we've seen the worse of the selling in bond markets.  MBS, for their part, held much steadier during the weakness--as we'd expect them to do, given the underperformance during recent rallies.