MBS RECAP: Increasingly Calm Trading Heading into Month-End

There's 'month-end' and then there's 'month-end.'  In a general sense, this entire week can be referred to as month-end as far as bond markets are concerned.  It's a time where money managers are adjusting portfolios to match adjustments made in the indices they're forced to follow.  On a related note, other traders are also making compulsory trades.  These trades must be made some time before the official 'month-end' which is closing time tomorrow.

Compulsory trading activity like this is helping bond markets keep a more even keel as the week winds down.  Additionally, Treasury debt supply has been successfully auctioned as of this afternoon and dealers no longer have to budget for the bids they're forced to make.  Corporate debt supply is ongoing, but has been lighter than it had been (which is normal at the end of a month). 

Incidentally, if you've been somewhat surprised about the amount of time we've spent discussing corporate issuance recently, here's some vindication.  May just set a record for the biggest month of corporate debt issuance, ever.  The previous record holder was March.  Before that, you'd have to go back to 2013.  The moral of the story is that such a high amount of debt supply has unequivocally caused volatility and weakness for domestic bond markets.  On the one hand, it tends to wane in the 2nd half of the year.  On the other hand, we may see corporations become more interested than they have been historically each time we see rates dip to key resistance levels. 

Today started out with moderate weakness--emphasis on 'moderate.'  The brief uptick in corporate issuance added to the pressure as did the auction accommodation.  After the auction, bonds fell right back into line at almost perfectly unchanged levels.  There was essentially no remaining movement after that, and not much outright movement in the first place today.  A bit spooky...

Tomorrow brings the 1st revision to Q1 GDP.  The last day of Q1 was about 2 months ago, making the data less interesting than the first reading on Q1 last month.  Still a big beat or miss will give markets plenty to think about in terms of public perception, inflation expectations, and the evolution of the Fed's rate hike rhetoric.