MBS MID-DAY: Just Barely Holding Gains After Volatile Morning

Bond markets came into the domestic session in slightly weaker territory owing largely to losses that occurred right at the start of the overnight session.  10yr yields were dragged up to 2.322 as Asian markets had their first chance to react to yesterday's FOMC Announcement in a meaningful way.  Weakness remained intact despite a nice rally in German Bunds.

Following the big GDP announcement, domestic bond markets were weaker for a few split seconds, but quickly began improving as investors sorted out the complex implications of 3 years worth of GDP revisions.  Long story short, the past 3 years were actually a bit weaker than initially reported--a fact that's benefited mostly the longer end of the yield curve.

That means that 10 and 30yr yields are in positive territory, while the shorter duration Treasuries are in negative territory.  MBS are just long enough (in terms of duration) to make the 'positive territory' cut. 

The discrepancy in performance based on duration makes sense considering this morning's data.  On one hand, the inflation-related components of the GDP data make a stronger case for an earlier rate hike (the Deflator was up 2.0 vs 1.5 forecast).  This puts upward pressure on short term rates.  On the other hand, the negative net revisions make a case for global growth concerns in the long term.  This puts downward pressure on longer term rates. 

The net effect is increased volatility and uncertainty about the near term path.  It continues to be the case that 2.26% or thereabouts, is acting as resistance (aka: floor) for 10yr yields.  Getting through that floor would be the first step to getting the rally back on track.