MBS Live Recap: Calm, Positive Day For Bonds

More than any other day in recent memory, today's trend was remarkably narrow for bond markets.  That's not to say it was "flat," though.  Indeed, there was a certain, much-beloved "diagonal" quality to the trend as it led rates lower and MBS prices higher.

All that having been said, the intraday trend belies some overnight movement--albeit to a very small extent.  The movement in question came just before the domestic open and was in response to comments from new Treasury Secretary Mnuchin.  The most interesting comment for bond markets concerned the topic of 50yr and 100yr Treasuries--something he and others have mentioned previously.  

It remains very much to be seen if 50 and 100yr bonds will materialize, but the resurfacing of the idea was enough to benefit the belly of the yield curve (5-7yr yields dropped the most today) and hurt the 30yr bond (which would lose the most demand if a 50 or 100yr bond were available).  

The implication for 10yr yields was fairly equivocal.  Bond markets instead focused on the broad takeaway from Mnuchin's comments on the economy and rates.  Specifically, he reminded us that fiscal policies won't result in 3% GDP any time soon (the end of 2018, in his words).  We went on to say that he expects rates to remain low for a "long period of time."  

Mnuchin is not in charge of rates.  He'll be the first to tell you that's Yellen's job.  Still, the comment on rates struck a somewhat different tone than much of the current fiscal and monetary rhetoric coming out of Washington.  With increased growth and spending, low rates are supposed to be a thing of the past, yet here is the Treasury Secretary for the new administration saying they'll be around for a long time.   

The reaction was minimal, but noticeable.  It helped set a positive tone for the domestic session and bond traders never found a reason to disagree.  Perhaps the realization that month-end is approaching sooner (due to leap year) is helping keep volatility under wraps.  Either way, bonds ended the day right in line with the best levels in 2 weeks.