MBS RECAP: Mini Roller-Coaster on Corporate Tradeflows and Fed Speak

The trading day started out timidly enough, but with a bit of an ominous tone.  This had to do with the fact the German Bunds made new all-time lows yet again, while US Treasuries did almost nothing to follow.  The first two hours of the domestic session were total duds in terms of movement.  In another ominous move, trading levels were having nothing to do with any sort of rally that would take them back through yesterday's best levels.

When rates know they won't go any lower, there's only one other direction to go.  They went higher after the 10am Philly Fed data gave traders their first decidedly positive data points of the week to hide behind.  It was almost as if they were just looking for an excuse to bounce higher. 

At least that's how it would have looked if we didn't know that corporate debt tradeflows were adding to the sell-off.  Goldman and BofA brought big deals to market today, and big banks traditionally use the Treasury market to lock their borrowing rates during their issuance process.  Traders know this and thus got ahead of the game by selling before the big boys launched bidding on their deals.  They did this again coming back in the other direction in the afternoon.  That's the point at which Goldman and BofaA themselves would buy back the Treasuries used to hedge their deals.  Unsurprisingly, we're drifting out very close to unchanged levels.