MBS Live Recap: Just When You Thought it Was Over

Just when you thought you'd seen the last of the healthcare bill drama, it comes roaring back.  Well, at least it felt like a roar.  In retrospect, a 4.5bp increase in 10yr yields 1 day after hitting the lowest levels in more than a month isn't exactly traumatic, but it certainly wasn't pleasant either.

Earlier in the day, unnamed sources were cited as saying the House republicans were discussing ways to revive the repeal and replacement of the Affordable Care Act.  Roughly 1 hour later, Speaker Ryan confirmed that healthcare reform remains a priority that the House wants to "get right."  

Suddenly, markets found themselves once-again able to believe in the narrative of sweeping fiscal reforms.  The icing on the cake was a series of comments out of the White House saying that it would now be able to focus on tax reforms--the thing markets are most interested in anyway.

While the fiscal and legislative developments were the day's biggest market movers, the 10am Consumer Confidence data definitely added to the bond market weakness.  It came in a staggeringly high 125.6 vs a 114.0 forecast--the highest in years.  Markets seemed to completely overlook the fact that the underlying data was collected before last week's healthcare debacle.

At the end of the day, the easiest way to look at the sell-off would be as a complete unwinding of Monday morning's rally.  That rally was predicated on an absence of updates on the healthcare bill over the weekend, so the return of updates--the rekindling of some small speck of hope--was enough to unwind that rally.