MBS RECAP: Best Kind of Day for Bonds: Steady and Much Stronger

• Brexit fallout continues.  That's really all we got
• Fortunately, that's a huge positive for bond markets
• 10yr yields dropped more than 10bps
• Fannie 3.0s rose more the 3/8ths of a point
• Stocks got killed

In terms of the ratio of market movement to the "new" news causing it, today is probably one of the least eventful days in history.  Everything important happened on Friday (Brexit) and today is merely a reverberation of that thunder.  

Now, that's not to say that market participants aren't weighing some extremely heavy long-term eventualities.  Indeed, they're probably doing more of that right now than at most any other time in the past few years.  The point is that we don't have any new info, and nothing new has happened.

In the current case, that's good because it leaves the doors of speculation wide open to some pretty severe outcomes over time.  These, of course, include the dissolution of the European Union among other things.  Keep in mind, we're talking about a long

Keep in mind, we're talking about a long time frame and some very big unknowns, but the fact is that Brexit has opened the door for these possibilities to be more seriously considered.  One way investors are accounting for that long term risk is to buy a LOT of long-term debt.  Case in point: 30yr bonds crushed the rest of the yield curve today, dropping 14bps versus only a 4bp drop in 2yr yields.

MBS continue struggling to keep pace with the drop in 10yr yields, but incentive is low when rates are well into 3-year lows.  Also, no lender wants to be caught holding the proverbial bag in case rates happen to bounce--even if only for a few weeks.  As such, mortgage rates have only trickled lower from Friday.  We can expect them to close the gap the longer the broader rate market holds these newly rediscovered levels.