MBS RECAP: Widespread Negative Reprices as Bond Slide Continues

The last 5 days have been ugly for bond markets--not quite as the beginning of February, but this time around, we aren't bouncing off multi-year lows.  This 5-day route tacks on to the end of what had already been a flat-to-slightly-weaker trend throughout April.  It was a carefully chosen directional move that followed rampant uncertainty as opposed to February's sell-off which was a reaction to an apparent bottoming out in yields combined with a quick increase in Fed rate hike expectations.

German Bunds continue to be in the drivers' seat.  They've weakened a whopping 40bps in just under 2 weeks.  US 10's haven't even lost half that much.  This is by far and away the biggest correction to the yearlong Bund rally that began early last year.  In general, if it continues, Treasuries will continue to face upward pressure.  The extent to which they give into those European influences will depend largely on domestic economic data. 

All of the above means we can cross our fingers for 2 things: a bounce in Bunds or rotten data.  Tomorrow offers the week's first prime opportunity for the latter with ISM Non-Manufacturing.  The tone of trading after that will tell us a lot about the approach to the rest of the week.  Between now and then (and indeed, until further notice), it makes the most sense to assume weakness will continue until we have a compelling reason to believe otherwise.  That may be almost impossible to come by before Friday's NFP numbers.