MBS RECAP: As Global Panic Pauses, Bond Markets Consolidate

Bond markets finally did what they've wanted to do for several sessions now: square up some of the trading positions from the recent rally. That rally began on July 14th, making it the longest positive trend of 2015 by last week. 

As any rally in any market continues, there's an ever-increasing risk or likelihood that it will experience a correction or consolidation.  This one was no exception, and it increasingly seemed to be resisting further improvement as of late last week.  On several occasions, I noted that it would take an ever-larger amount of outside justification for the bond rally to continue.  In other words, it was a "hungry" rally.

Had it not been for Monday's record-setting weakness in global equities markets, we likely would have seen a bounce in bonds yesterday.  Even with the external volatility, bonds only managed to end the day with modest gains. 

That set the stage for today's heavier selling.  All it took was for global markets NOT to begin the day in panic mode.  Bonds quickly set about the task of booking profits and adjusting positions from the recent rally.  It was a purely corrective movement, and doesn't hold any clues as to whether or not there's more weakness to follow.