MBS RECAP: Foreign Central Banks and Data Causing Problems

Bond markets weakened overnight as Yen/USD surged higher (meaning Yen is weakening versus the dollar).  This has to do with the potential for new stimulus at the end of the month whereby Japan is rumored to be considering giving money directly to its citizens (instead of buying bonds).  Today isn't the first time this moved markets, but a few more headlines were out overnight, so a bit more movement took place.

Meanwhile, another major central bank was set to make news a few hours later.  Not everyone expected the Bank of England to cut rates at today's meeting, but evidently more than a few traders were surprised by the fact that they abstained.  Rates moved swiftly higher after that and entered the domestic session with 10yr yields up to 1.52 from yesterday's close of 1.475.

The morning's economic data put just a bit more negative spin on the ball, with Producer Prices jumping up 0.1 percent over last month to a core, annual level of 1.3 percent--well over the median forecast of 1.0 percent.  Bonds weakened further in choppy trading but a clear trend emerged as the day wore on: 10yr yields wanted to hover near the 1.53% pivot point ahead of tomorrow's session, which has the biggest economic data of the week (Retail Sales and Consumer Prices).