MBS RECAP: Bond Markets Mostly Put Their Foot Down

After two days of relatively brutal selling, bond markets finally opted for much less brutal selling.  In fact, 10yr yields were in positive territory as of the official 3pm ET closing time.  They've since trickled back to slightly higher yields, but even then, only by about 1bp.  MBS are in a similar boat with Fannie 3.0s down only 2 ticks and Fannie 3.5s down only 1 tick on the day.  None of that is too shabby considering the previous 2 days combined for a 17bp increase in 10yr yields and a half point drop in MBS.  Additionally, bonds were resilient in spite of a 47 point gain in the S&P.

Early movement came courtesy of stronger-than-expected GDP.  Bonds were at their weakest levels shortly thereafter, but found support there.  Trading was sideways into the afternoon, but improved markedly after the 7yr Treasury auction.  For instance, 10yr yields dropped from 2.204 to 2.166 in the 30 minutes following the auction.  MBS made a similarly perky move.  All this having been said, these are very small movements that stand as an epilogue to a story that's already been told.