MBS Live Recap: Overblown Headlines Thwart Bond Bounce

Bond markets were weaker overnight and continued pushing toward the first of two important resistance levels (think "ceilings") during the domestic session.  Before any of the day's drama set in, however, we managed to bounce before breaking that ceiling thanks to tradeflows that kicked in at the 9:30am NYSE open.  10yr yields came down from roughly 1.60 to 1.58 in the first half hour of NYSE trading and then held fairly flat for the next few hours.

Then the drama showed up. Bloomberg ran a story about hedge funds pulling certain cash holdings from Deutsche Bank.  Markets took this as some sort of "run on the bank."  Stocks sold off and Treasury yields dropped accordingly.  

So was it a run on the bank?  

Not really.  Keep in mind that DB's share price is already in the toilet and has been in perpetual downtrend since the beginning of 2014.  Markets have consistently and increasingly sent a clear message about their regard for the outlook and profitability of European financials.  Since the onset of the European financial crisis, they've never really been allowed to participate in the same sort of renaissance seen among American financials.

With all that in mind, there really can't be any overly-shocking news about DB.  It would would be very old news. 

Even so, there is an understandable amount of fear in markets for any large institution that touches the money of so many market participants.  A few traders and talking heads start throwing around the word "systemic," and even a firm with a stock price that's barely in the double digits can cause a bit of an intraday hustle in stocks and bonds.  

It ended up being fairly uneventful as bonds never managed to break below yesterday's lowest yields.  Looked at in a more positive light though, it did prevent yesterday's move toward higher rates from gaining any momentum.