MBS MID-DAY: Surprise Surprise! Bonds Nearly Unchanged After Morning Volatility

If this happens to be your very first time reading this site, you should know that we've been talking a lot about a few things.  First is the fact that bond markets have been almost perfectly sideways for most of April and in general, have been lacking in conviction to challenge either side of their trading range.  Secondly, we recently began discussing the fact that markets seem predisposed to discount negative data at the moment, and instead seem like they're looking for any positivity in order to justify some latent urge to back yields up ahead of the upcoming FOMC meeting the week after next.  The final recently recurring topic is the incredible long and short term relevance of an inflection point from 1.84-1.86 in 10yr yields. 

(Incidentally, if it really is your first time reading, I suppose I should throw out my periodic disclaimer about it making more sense to follow 10yr yields when it comes to broad trends in interest rates  The justification for that is a small novel unto itself, but it's super true, I promise.)

Yields once again approached the inflection zone overnight and once again bounced without breaking through.  The initial motivation was CPI data that wasn't as downbeat as it might have been.  Most importantly it met expectations at the core level, thus giving traders something to hide behind as they pushed yields quickly higher.

But there's been no runaway sell-off!  This comes back to the lack of conviction in the first point above.  After failing to break the higher side of the range, rates have been gaining traction since the noon hour.  10's are currently back in the green and MBS are just barely into positive territory. 

Trading has benefited from Corporate hedging 'unwinds' (the Treasuries that are bought back after previously being sold in order to lock in borrowing costs as part of the corporate issuance process).  It's not uncommon for Friday afternoon trading to head the other direction as opportunistic accounts try to get in front of next week's corporate issuance expectations, but this generally doesn't occur until 2pm or later.  Stay on guard for that potential late-day weakness.  Otherwise, so far, so good for now, even if the lack of conviction is less than exciting.