MBS MID-DAY: Bonds Battle Back From Liquidity-Driven Weakness

First and foremost, the overriding theme today is that it's every bit the uninspired session we expected it to be.  Part of that expectation was that we could see quick moves inside a narrow range due to light liquidity/volume.  This has indeed been the case as trading levels remain totally contained by the range set on Thursday and Friday

Despite erring on the side of weakness earlier, MBS and Treasuries have been improving since about 9:45am.  Before that, the significant moves into weaker territory both arrived precisely in line with market liquidity.  The first was at the European open at 2:30am and the second was at the domestic (CME Treasury pit) open at 8:20am.

Heading into the afternoon, liquidity is getting light again.  Remember: "liquidity" refers to the availability of buyers and sellers interested in doing business at or near your preferred price.  It's not always the same as volume.  When liquidity is low, it means that a buyer or seller might have to jump farther from their desired buying/selling price in order to make the trade they need to make.  This means we can see quick pops higher or lower.  That sort of volatility is fairly well contained for now with both MBS and Treasuries still in modestly weaker territory.