MBS RECAP: Uneventful Day for Bond Markets After Early Volatility

For a few moments in the middle of the day, it looked like bond markets might be thinking about getting something going  insofar as making the recent resilience look more like an actual attempt to rally.  As it turned out, the volatile gains in the morning ended abruptly when European markets closed.  Both stock prices and bond yields subsequently moved higher in the afternoon.

MBS were something of an exception, both to the early morning volatility and to afternoon reversal.  There are a few reasons for this.  First off, MBS aren't as sensitive to geopolitical headlines and general flights-to-safety in financial markets.  As such, Treasuries outperformed in the morning hours, which also left them with more room for underperformance as the flight-to-safety abated in the afternoon.  Corporate issuance was the other complicating factor as it doesn't slightly more damage to Treasuries vs MBS.

By the end of the day, MBS ended up holding almost perfectly flat with Fannie 3.5 coupons up 2 ticks at 103-09.  10yr yields were technically 0.0036% lower on the day, but it's just as well to say "unchanged."