MBS RECAP: Ugly Monday for Bond Markets; Widespread Lender Reprices

Right from the start of the overnight session, global bond markets were on the back foot.  During Asian hours, this was contained to a 3bp spike in 10yr yields that merely drifted higher for the first few hours.  Once Europe came online, things deteriorated quickly. Greek yields shot more than 100bps lower and German yields began their worst selling spree in more than 2 weeks. 

Until 10am, US Treasuries were still VERY much "along for the ride" (bringing MBS with them after 8am).  Then we saw some old fashioned cause and effect as stronger Existing Home Sales pushed yields higher.  In other words, strong data motivated selling in bond markets.  That's not always a given these days.  Heck, it may not even be more than a 50/50 chance any more.

Unfortunately, additional motivation for weakness meant that bond markets were in the snowball zone.  That's where momentum becomes its own reason for more momentum.  Traders who may have been betting on lower rates after 10yr yields hit 2.50 earlier this month would have certain "stop loss" levels in place.  That means they'd sell bonds in order to preserve as much of the gains as possible.  When they sell, it makes yields go higher still, which runs the risk of triggering more stop-losses. 

All told, 10's rose 10.4bps by the 3pm close.  Fannie 3.5 MBS fell a whopping 25/32nds, and most lenders repriced at least once.