MBS Live Recap: Weaker Econ Data and Month-End Trading Fuel Token Rally

Bonds have rallied moderately since last Thursday.  Incidentally, that's also when stocks topped out after their run to all-time highs (for most indices).  Indeed, stocks and bonds have been a bit more correlated than normal recently as financial markets wait to see where the chips fall for 2017.

Said chips include things like fiscal policy, monetary policy, economic data, and general trading momentum.  It will take time for the fiscal and monetary policy pictures to become clearer.  Econ data and tradeflows, on the other hand, provide a constant stream of information.

Tradeflows remained supportive out of the gate as European bond yields moved higher, but failed to break above yesterday's highs.  That encouraged similar ground-holding for US bond markets in the overnight session.  As such, bonds began the day in slightly stronger territory, but still well-within yesterday's range.

Econ data also proved to be supportive--especially the 9:45am Chicago PMI report which came in at 50.3 vs a median forecast of 55.0.  That's a fairly big miss, and markets reacted accordingly.  Stock losses synergized with bond gains, prompting a break of a short-term technical floor in 10yr yields (2.469, laid out in the Day Ahead).  Momentum carried yields quickly lower to 2.433 by 11am, but that's as far as the rally went for the day.

Fannie 3.5 MBS hit their ceiling around the same time (up roughly a quarter point at the highs), resulting in more than a few positive reprices.  Bonds gave back some gains after the 3pm CME close (less support from month-end buyers after that), but the losses were just small enough to avoid widespread reprices.