MBS RECAP: Month-End Quells Volatility, but Keeps Bonds Green

It's rare that I'll decide to include a chart with a shorter maturity yield curve constituent in the Day Ahead.  In this morning's case, that happened to be the 3yr Treasury note, and 3's continued outperforming 10's and MBS today through the official 3pm close.  In fact, the so-called "belly" (3, 5, and 7yr Treasuries) were the epicenter of month-end bond market strength, but fortunately, they were strong enough that 10's and MBS were able to come along for the ride.

The yield curve levels (one Treasury yield minus another) between various maturities were the best technical shows in town.  Particularly, 10s vs 3's orbited 1.053 beautifully, and when the spread strayed too far in either direction, traders bought the laggard to bring things back to the center.  In other words, this was the unspoken month-end target, and the actions taken to respect it made for today's modest movements.

The most immodest time of day in that regard was surrounding the morning data and the NYSE open.  Bonds sold off in general leading up to the stock open but rallied back behind cover from a much weaker than expected Chicago PMI report.  From there, nothing else really moved the needle and we ground the day out sideways to slightly stronger.  More volatility is expected tomorrow without the calming effects of month-end, not to mention the arrival of significantly more potent data (ADP, and both flavors of ISM).