MBS RECAP: Another Day With Multiple Negative Reprices

Ever since bond markets failed to respond positively to yesterday morning's exceptionally weak Durable Goods report, things have been almost exclusively negative.  That anomaly provided a clue that has since been convincingly confirmed: it's not about the data or headlines over the past two days.  Once the rally reached levels coinciding with 10yr yields dipping into the mid 1.8's, buyers simply stopped buying.

Given the current, ongoing level of illiquidity in bond markets, it doesn't take much to get snowballs rolling after a strong move in one direction.  With rates improving almost exclusively for more than 2 weeks, we were arguably in the midst of a strong move through Tuesday.  Once the selling takes hold in that scenario, it becomes its own reason for more selling.

At this point--frustrating though it may be--there really is no great event-based explanation for the weakness that can't be fairly easily refuted.  One of the only possible exceptions would be the corporate debt calendar as March is a new record for issuance (which puts pressure on Treasuries and MBS in a few ways).  That said, the issuance over the past few days hasn't been epic, so it can't conclusively be blamed. 

Bottom line, the rally ran out of steam, and pull back has been sharper than normal.  It's almost a certainty that technicals play a role here.  With that in mind, we have our first legitimate positive anecdote of the past 48 hours as 10yr yields have reached the 21-day exponential moving average (in fact, they bounced there, sort of...).  There's no way to know what tomorrow will look like, but if we don't see another red day, that technical bounce will be looking even stronger.  Wishful thinking perhaps, but the alternative is to discuss the next set of technical levels between 2.05 and 2.20.