MBS RECAP: Big Move in Yield Curve; MBS Unchanged

All of today's drama--if you can call it that--came in the form of curve trading.  That refers to traders adjusting bond market holdings by selling one part of the yield curve to buy another.  In today's case, the shorter maturities were sold and longer maturities were bought.  This so-called curve flattening is consistent with several of the key inputs we had today. 

The first input was the Core CPI (consumer price index, an inflation measure) reading, which came in  right in line with expectations at +0.2.  Treasuries generally weakened on this data across the curve, but 2 and 3yr Notes weakened the most as they would be more affected by changes in Fed rate hike timing. 

The second input was the ongoing rate-lock unwinds after a big week of corporate bond issuance.  Corporations sell Treasuries in the same way lenders sell MBS to effectively lock in rates (because corporate pricing uses Treasury yields as an index). After the bonds are sold off, the hedges are often bought back (buying Treasuries, thus indirectly helping MBS).

Finally, stocks tanked big time today.  S&P futures fell more than 40 points peak to trough.  While Treasuries barely blinked at this, the mass migration out of equities has to end up somewhere, and bonds look to have picked up a few token asset allocation trades. 

More important than any of the minutia is that rates continue to be unwilling to break below the important technical resistance that's blocked our progress for nearly a month.  Same story as yesterday: the longer this doesn't change, the more ominous it becomes.  Or at the very least, the bigger the next move will be.