MBS RECAP: Waiting on The Fed is the Only Game in Town

It was a tediously calm Monday for bond markets, with one or two exceptions.  The first would be that the overnight trading session did see a moderately strong trend as global equities and bond yields moved lower.  That resulted in Treasuries and MBS putting in their best levels early in the morning.  From there they drifted sideways to slightly weaker, but MBS never threatened to move into negative territory on the day.

Treasuries were a slightly different story, and herein lies the second potential 'exception' to the calm Monday theme.  There was a noticeable spike in Treasury yields beginning just before 2pm.  The only available scapegoat was a decently-sized corporate issuance from Disney.  In fact, the launch of the deal coincided perfectly with the move in Treasuries, suggesting that the interest rate exposure was hedged with Treasury sales (or functionally equivalent trades).

In other words, Disney locked their rate.  Because corporate rates are indexed with Treasuries, firms can sell Treasuries to offset any fluctuations in rates from the time the deal is announced or launched  to the time it is finally priced and spoken-for by investors.  Once the corporate deal is priced, the Treasuries that were sold to lock the rate are often bought back.

Even after all that, 10yr yields only nudged into negative territory for a split second before they, too, opted to hold the range.