MBS Live Recap: Bonds Hint at an Ominous Floor as Sell-Off Intensifies

If you read anything I write today, make it The Day Ahead: The Death of a Long Term Trend; A Definitive Assessment.

If you want to read more, here's a recap of today's action.

This wasn't the typical "day-after-Fed" trading day for US bond markets, nor was it a typical mid-december day.  In December 2015, Fed day (when they last hiked) saw just over 1 million Treasury futures contracts and slightly less the following day.  This time around, Fed day saw over 1.7 million contracts and today's sell-off saw volume swell to over 2 million contracts.  The volume spike adds gravity to the situation.  

Data was ignored.  Stable CPI and a balmy Philly Fed report would have made for weakness on an average day.  But bonds were already at the day's weakest levels heading into the data.  10yr yields were as high as 2.641 and then eased into a slightly lower range following the data.  

The troubling thing about that new range was the fact that yields made several attempts to break below yesterday's highs and failed each time.  This establishes a clear case for a new technical target (or "floor" or "resistance") of 2.565.

Fannie 3.5s were more than a half point weaker at times, but finished the day down 13 ticks at 101-02.  Reprices were far less prevalent than yesterday.  This is logical, considering there wasn't really any instance of precipitous selling.  But it was also made possible by the fact that lenders pulled pricing back AGGRESSIVELY right out of the gate.  Most lenders were an eighth of a point higher (in RATE) on the average conventional deal.