MBS RECAP: Afternoon Bounce For Bonds After Weak Start

The morning and early afternoon hours were mildly disconcerting for bond markets as recent losses extended.  Even so, most of the losses were in before 9am.  That had the added benefit of insulating rates from most any reprice risk.  Finally, although we wouldn't realize it until the late afternoon, it also set us up for positive reprices as bonds came charging back late in the day.

The justification for the afternoon bounce is a complex and mysterious subject depending on how much certainty you want.  Now... it's not for nothing that I've spent the last two days discussing the implications of the holiday-inspired trading volume.  As recently as this morning I talked about it equating to the proverbial 'jury' being out.  In that sense, any seemingly confusing market movement could be as simple as the jury returning with their verdict.

For those that need more timely specifics, there are a few other candidates.  The most visible headline market mover concerned the White House power outage.  There were even a few wires that mentioned a "lockdown" and a "suspicious package," but they received passing glances at best.  Less visible, but more likely in play was the fact that corporate bond deals were pricing in droves today.  When that happens, it can create instant buying needs in Treasuries depending on how the deals were hedged during the issuance process.  On a final note, the fast-paced gains began after 2pm, which is the most active time of day for algorithmic and other short-term, opportunistic trading. 

Whatever the case, a day that had been red, ended green, and several lenders released positive reprices as the afternoon progressed.