MBS Live Morning: Bonds Hitting Resistance Despite Weaker Econ Data; MBS Underperforming In General

Friday is not shaping up to be a great day for the mortgage bond market.  Our benchmark guidance giver of choice (10yr yield) is in the midst of a potential technical bounce at 1.70% after breaking into the 1.69's after hours yesterday.  Yields quickly corrected overnight and have now bounced HARD at 1.70+ this morning before heading to new session highs.  There were no discrete events to blame but Consumer Sentiment inflation expectations aren't helping. 

The chart may focus on the resistance levels underfoot, but we could just as easily take solace in 1.76% overhead.  At the very least, we can continue to watch 1.76% for support for the rest of the day, and reserve a gloomier outlook for an upside breakout.

Meanwhile MBS continue to underperform Treasuries with the yield gap between the two at the widest levels in more than a year.

For the sake of context, before the pandemic, MBS spreads spent almost the entirety of the last two decades at higher/weaker levels than we're currently seeing.  This includes times when the Fed MBS buying outlook was even stronger.  The twofold takeaway is that A) spreads are still very strong and B) it wouldn't be alarming to see additional spread widening in 2022.

Today's econ data has come and gone without doing bonds any favors.  That's potentially confusing considering it was almost exclusively weaker (and weaker data is supposed to be good for bonds).  But to reiterate our conversations from earlier this week, what can near term econ data do to change the outlook for Fed policy tightening?  Those balls are in motion and it would take much more than a smattering of weaker econ data to change things.  That's doubly true when one of today's data points included the highest consumer inflation expectations in more than a decade.