MBS RECAP: One Last Bump Before Brexit Results

• Bonds bumped higher in yield by Brexit polls overnight
• Brexit vote is ongoing and results won't be final until early tomorrow morning
• No impact from economic data today
• Neither side of the Brexit trade is fully priced-in, leaving plenty of room for volatility tomorrow

I don't usually have high-conviction feelings about what markets will do in the future.  When I do, it is almost always in the form of expecting volatility.  That's how I feel about tomorrow morning's opening levels in bond markets.  It's one of the few times I think it's fairly safe to say that we'll see a relatively big move in a logical direction.

What is relatively big?  Something on the order of 8-10 bps in 10yr yields.  It could be a little higher or lower, but my sense is that the Brexit result implies a move toward established range boundaries.  1.80-1.84% has a lot of history as a pivot point for 10yr yields, and just last week we closed at 1.61%.  So with current yields around 1.74%, 10bps doesn't seem like an insanely big move.  It might even be a logical move.

The only caveat to all of the above is that markets have a tendency to move a little bit less than you think they might in cases like this.  It usually ends up being the "surprises" that cause the bigger pops, but if I had to pick a short list of probably exceptions to that general rule, the Brexit reaction would be on it.