MBS MID-DAY: Yields Firmly Into 1-Month Lows as Stocks Struggle

The stock lever is VERY well-connected recently.  That means, at any given moment, if equities are moving higher, bond yields tend to be doing the same (and vice versa).  Each side has taken its turn as the lead dog at times, but certainly, it's bonds that are more keen to follow when stocks are on the precipice of a major technical cliff.

The cliff in question rests on the recent lows for equities markets.  Using the S&P as an example, today's losses bring it back in line with the late August lows seen during the China-inspired selling spree.  A significant break below that would be the most negative move stocks have made since the Financial Crisis. 

That's the sort of thing that bond markets don't want to "miss out" on.  By that, I mean that bonds know they'll be soaking up at least some of the cash that results from such a widespread liquidation in equities.   As such, it's not surprise to find bond yields at their lowest levels since late August as stocks stand on the edge of their own late August lows. 

Refreshingly, bonds have been more resilient than they need to be.  Even as stocks have put in a "higher low" between their 10am and 1pm bounces, bond yields have clearly made a "lower low" over the same time.  An absence of corporate debt issuance and an influx of pension fund buying (it's that time of year/month) are helping.  Overseas buying is also said to be helping as it's the end of Japan's fiscal half-year.