MBS RECAP: As Far as Down Days Go, Not Too Bad

MBS ended the day in slightly weaker territory, and they did so in about the gentlest possible way.  The domestic session began with trading levels in much weaker territory after Treasury yields rose somewhat significantly overnight.  From a deficit of nearly 3/8ths of a point, Fannie 3.5 MBS climbed their way back within an eighth of a point of 'unchanged' by the close.

Actually, the bounce back had fully run it's course by noon.  That was more a factor various market closures--especially European equities and the London Metal Exchange.  That's not normally very important for domestic bond markets, but with the recent volatility in commodities, copper prices (among other things) have been more correlated with Treasuries than normal.  In today's case, a rebound in copper prices was one of the many factors that contributed to earlier weakness in bond markets, and a late-session correction helped bonds bounce back.

Commodity fluctuations were joined by heavy corporate debt issuance in completely overshadowing any input from economic data (corporate debt creates more supply in bond markets and Treasuries can be sold during the hedging process, both hurting rates).  That worked to Treasuries disadvantage considering the day's only significant data was a much weaker than expected Consumer Confidence report.  Still, it's not unfair to argue that the weak data very likely helped bonds hold the ground they were already attempting to hold earlier in the morning.