MBS RECAP: Another Brutal Sell-Off (Leaving Bonds at 3-Year Lows)

• Bonds rode overnight momentum to best levels in 3+ years
• Stock selling is definitely part of the equation
• Brexit drama now involves murder, which may have moved markets
• Either way, rates and stocks had enough of "moving lower"
• Bonds sold off, but easily maintained 3-year low closing levels

There's intraday and then there's "closing levels"--the official mark that will forever represent today's bond trading on long term charts.  Intraday, 10yr yields were as low as 1.518.  Moving up from there to 1.58-ish has no doubt been unpleasant, but the unpleasantness is still an "intraday" phenomenon.  Day-over-day, bonds were unchanged, and today's 3pm closing yields were noticeably stronger than yesterday's closing yields (roughly 3bps lower!).  The moral of that story is that things sucked in the middle of the day, but remain solid in the big picture.

That doesn't mean we should be complacent, however.  Tragic headlines reminded us today of the level of anxiety and uncertainty surrounding the Brexit vote.  A British lawmaker (and proponent of the UK remaining in the EU) was murdered today, and the timing of the news roughly coincided with a market reversal.  In other words, there's some chance the tragedy could serve to bolster the "remain" camp in the eyes of undecided British voters.  

Granted, this is a very long shot, and it certainly wasn't the only source of market movement at the time, but the timing was too coincidental for us to rule out that markets really could be this jumpy.  

Despite the strong day-over-day close, it would be prudent to keep in mind that bond market technicals are increasingly flashing the early warning signs of a correction heading into next week's Brexit vote.  There's no telling how much momentum such a correction might gather.  It probably wouldn't be anything ridiculous, but it could easily be enough to argue against complacency here at multi-year lows.