MBS RECAP: Confluence of Positive Events Keep Bonds Happy All Day

US rates markets began the global trading session fairly timidly, but moving slightly lower in yield.  European hours brought bigger moves as stocks tanked and German Bund yields rallied quickly at the open.  Europe's big "risk-off" trade (lower stocks/lower yields) tried to bounce, but only managed a tepid consolidation before giving up just before 8am New York time.

When the first round of domestic economic data hit at 8:30am, bond markets had quick second thoughts about following the stock sell-off.  Reason being: the internal components of the Durable Goods data were stronger than expected.  With this being one of the week's most significant reports, it's fair to assume it will add at least something to the ongoing debate over the Fed's rate hike timing.  The fact that stocks took that opportunity to diverge from bonds suggests it was indeed an "accommodation trade."  (In other words, the data put a few bricks in the wall of an early Fed rate hike, which causes both stocks and bonds to lose ground).

The next data didn't hit until 10am, and all we really have to point to by way of justifying the bond market reaction would be some of the internals of the Consumer Confidence data.  Were this the case, we would have seen a more concerted reaction right at 10am.  As it stands, the bulk of the rally didn't occur for another half hour, and didn't run its course until 1120am.  This is all the evidence we need to chalk that particular leg of the rally of to Europe, whose equity indices close at 1130am.

The remains of the day were little more than an uneventful, positive grind that resulted in the best closing levels since May 15th.  There are too many positive incidental factors to read too much into the gains, but the sheer fact that 3 out of the last 4 sessions have been positive is the best thing we've been able to say about bond markets in at least a month.