MBS MID-DAY: Bonds Hold Ground in Volatile Trading as Europe Rallies on QE Details

Relative to its potential, today's release of ECB QE details turned out to inspire only modest volatility.  Compared to an average day, however, the swings have been sharper and more frequent. 

The overnight session was uneventful and slightly weaker for Treasuries.  By the time Draghi began his press conference, both MBS and Treasuries were in slightly weaker territory.  10yr yields in particular were pushing their recent technical support level at 2.15 (though they never broke it).

Draghi's initial prepared remarks were generally upbeat and did some slight damage.  But in one of the Q&A responses, he noted that purchases could continue until yields reached the current deposit rate.  That means if the ECB has money to spend in their €60bln/mo allotment, and an eligible sovereign bond yield is over -0.20%, they will be buying.  It's basically a heads up that all short-term yields in stronger EU sovereigns will soon be pegged at -0.2.

That realization sent yields screaming lower heading into the 9am hour and in the blink of an eye, MBS and Treasuries were back into positive territory.  But 10's were only willing to follow the rally as long as European bond markets were rallying.  That stopped being the case just before 10am and domestic bond markets reversed course.  The selling stalled out before breaking into any weaker levels, leaving us near unchanged heading into the afternoon.