MBS Live Recap: Typical Case of The Mondays

Monday's without significant economic data or overseas geopolitical developments tend to be quite lifeless for bond markets.  Today was no exception.  Fannie 3.5s ended the day perfectly unchanged and 10yr yields rose 1.3bps in a move that had more to do with pressure from corporate debt issuance and yield curve steepening (2-3yr yields improved the most while 10-30yr yields rose).  The steepening is most simply viewed as an ongoing correction to last week's massive spike of flattening.

A flatter yield curve means 2yr yields are rising relative to 10yr yields.  Since 2's respond more to Fed rate hike expectations and since there was a major shift in those expectations last week, it's fairly logical to have seen the flattening.  Traders have moved on to consider what the Fed might via their updated economic projections.  

In addition, this week's auction cycle includes 10yr notes and 30yr bonds.  Both of these factors  (along with the corporate issuance profile, which was weighted toward longer-duration debt) imply steepening pressure.  

Short term technicals are nearly favorable for bonds again, but longer term technicals are shifting in an unfavorable direction.  I'm not too optimistic that short-term momentum is quite ready to bounce given the fact that last week's weakness was more than a random in-range correction (i.e. it was driven by Fed hike expectations and the market's corresponding reaction).