Bonds Obliterated. Why and What Next?

Today was an astonishingly bad day for the bond market relative to what the average trader expected.  This isn't as noticeable when it comes to 10yr yields, which had a day that was merely in the same league as several of the worst days of the past few years.  But it's blatantly obvious when looking at shorter term bonds like 2yr notes which had their worse day since 2009 (by a wide margin).  Such things can only happen when the market is scrambling to reposition for a rapidly evolving Fed policy outlook.  It remains debatable that today's CPI data and comments from Fed's Bullard justify such a scramble, but there's no debate that these 2 events set the tone. 

Econ Data / Events

  • Fed MBS Buying 10am, 11:30am, 1pm

  • Core Annual CPI .........6.0 vs 5.9 f'cast
    Headline Annual CPI ...7.5 vs 7.3 f'cast
    Monthly CPI ...............0.6 vs 0.5 f'cast
    Monthly Core CPI ........0.6 vs 0.5 f'cast

  • Jobless Claims 223k vs 230k f'cast, 239k prev

Market Movement Recap
09:00 AM

Much weaker after CPI data.  10yr yield up 5+ bps, momentarily hitting 2.00% just now.  3.0 UMBS down 3/8ths of a point.

11:01 AM

Additional weakness as the day continues.  No new motivations... just momentum.  10yr up 6.9bps at 2.014% and 3.0 UMBS down more than half a point.

12:49 PM

Bonds continue pressing higher highs in yield (or lower lows in price).  MBS are HEAVILY affected by illiquidity at the moment but also reeling from Bullard comments (100bps hike by June, etc.)