MBS RECAP: Bonds Hammered on Multiple Fronts

• Stock rally hurts bonds
• Even before that, corporate issuance added pressure
• New March trading position-taking (and ultimately, profit-taking and stop-losses) also contributed to the snowball
• ISM data was a focal point for the volatility.

The S&P gained more than 40 points today.  In a world where we've often observed that bond markets can continue to experience happy days as long as stocks are in distress, that tells us much of what we need to know.  But there's certainly more to the story.

It is interesting to note that bond markets led today's charge toward higher yields (and higher stock/oil prices).  Both US and European yields surged mercilessly following the 10am economic data.  As I discussed in one of today's several reprice alerts on MBS Live, the ISM Manufacturing data wasn't a huge market mover because it was so strong.  Rather, it put a firm foot down against a rather troubling trend.  If past precedent is any guide, today's data is the sort of reversal that could put an end to the current recession in manufacturing data.  Here's the chart from earlier today showing the ISM bounce.

Elsewhere in the world of bond market negativity, corporate bond issuance continued to weigh on the overall supply picture and tradeflows continued to reshuffle as a new month of trading positions took shape.  Speaking of those positions, we do know there were plenty of "longs" in the market (those betting on rates moving lower).  We also know that they got steamrolled fairly quickly this morning (i.e. forced to sell in order to prevent further losses).  This certainly added to the morning's snowball move.  By the time stocks and oil got involved, most of the drama had already passed for bond markets.

10yr yields ended the day up 9bps at 1.827--notably below the important 1.84% technical level.  That's something we can take some solace in, as long as it remains unbroken.  Fannie 3.0s fell 3/8ths of a point, with most lenders seeing roughly half a point of weakness from rate sheet print times.  Negative reprices were widespread.