Bonds Taking Defensive Lead-Off to Start Fed Week

It's an understatement to say that "all eyes are on the Fed" this Wednesday as the committee meets to decide whether to hike 75 vs 100bps, among other things.  Those "other things" include an updated dot plot (Fed rate forecasts) and of course the Powell press conference half an hour after the announcement.  Between now and then, the path of least resistance for bonds is to "sell the rumor" of an increasingly hawkish Fed with some hope to be held out for "buying the news."  

In the bigger picture, yields continue to push the highest levels in more than a decade, with new highs set today, even in the longer end (i.e. 10yr yields). 

While the long end is under enough pressure to hit new long-term highs, the short end remains under even more pressure owing to its greater sensitivity to the Fed rate outlook.  MBS share more in common with those shorter-duration bonds at the moment.  The result has been bad for the relative performance in MBS.