MBS RECAP: Steady, Uneventful Gains Keep Pre-NFP Consolidation Intact

It was quite a nice pre-NFP Thursday for bond markets.  Trading was uneventful in our favorite sort of way where the gains begin early and losses never create any meaningful reprice risk.  Indeed there were no negative reprices today and no need for updates amid a dearth of data and events.

Because of the lack of events, it's hard to say what compelled bonds to pick up yesterday's lost ground, but there are a few solid clues.  First and foremost, the rally ran out of gas right around 1pm.  Were this to have been an auction day, we might consider that, but instead, 1pm is only relevant today as the final closing time for most European markets.   When we combine that with the fact that the Bank of England's rate announcement provided market-moving guidance for Treasuries in the overnight session, we might consider the bottoming-out to simply reflect the absence of positive European influences.

Beyond that, oil tanked early and often.  There's been enough of a case to be made for correlation between oil and bond markets that we can give this some credence.  Here too, oil's skids were no longer greased right around the time that bonds leveled off.  On a more esoteric note, corporate issuance stayed relatively at bay for a 2nd day.  This decreases overall supply pressure in bond markets in general, or rather, prevents supply pressure from doing its usual amount of damage (because corporate debt is always being issued to some extent).

Whatever the case, MBS ended a quarter point better, fully erasing yesterday's losses, but by no means digging back into Tuesday's.  That's consistent with the "range-finding" thesis from yesterday, and keeps things neutral (in the bigger picture... obviously, it's great for today) heading into tomorrow's NFP.