MBS RECAP: Decent Recovery Intraday but Broader Themes Intact

If you're just looking at the 2-day chart, bond markets did a decent job of pushing back toward positive territory today.  That was especially true for MBS, which actually made it back into positive territory while Treasuries remained under more pressure due to the day's hefty corporate debt issuance.  Treasuries are more affected by the corporate bond market because they serve as the index for corporate bond pricing.  As such, they can be sold in order to insulate firms from rate volatility during the issuance process.

If you're looking at anything longer than a 2-day chart, things are still pretty depressing.  Both MBS and Treasuries hit their weakest levels since September before bouncing back in the afternoon.  As for the weakness and the rally, these were merely minor brushstrokes in the bigger picture.  Following last week's FOMC Announcement, bond markets have been intent on moving to higher yields before tomorrow's NFP, with minor adjustments to account for whatever Yellen ended up saying on Wednesday.

That goal (of moving higher in rate) was arguably accomplished today when 10's hit 2.263--close enough to the 2.27 target I laid out last week after we broke 2.13.  I wish that meant I were clairvoyant, but instead it merely means that bond markets are scared and anxious--thus moving somewhat predictably between known waypoints on well-worn paths.  Tomorrow's NFP probably isn't the epic event that some news articles seem to think it is, but if it's ridiculously low and bad, it could cause a partial rethink of the Fed's trajectory.  I'll talk more about that and other possibilities in tomorrow's Day Ahead commentary.