MBS Live Recap: Bonds Bounce as Debt Ceiling Issue Gains Traction

Bond markets began the day holding impressively sideways.  Why impressive?  Because there was a small laundry list of potential reasons for weakness.  This included: 

• Democratic congressional leaders announcing they were prepared to vote for Harvey aid and a 3-month debt limit increase in order to provide time to negotiate on DACA, government funding, and health care.
• The Labor Department released benchmark revisions to nonfarm payrolls that would raise the total job count by 95k from March 2016 through March 2017 
• The Bank of Canada unexpectedly raised rates
• a good amount of corporate bond issuance 
• no new rate-friendly drama regarding North Korea
• Reasonably strong ISM Non-Manufacturing data
• A shift toward short positions in a major survey of bond traders (short positions = higher rates)

Ultimately, it was the debt ceiling news that ended up doing the damage, but not until Trump voiced his support (via "sources briefed on the matter").   That news coincided with the spike in bond yields just before 1pm, which ultimately undid about half of yesterday's gains.

MBS lost a similar proportion of their gains from yesterday, but because they lagged the Treasury rally, that meant a mere eighth of a point for Fannie 3.5 coupons.  Because of that, not every lender repriced for the worse, thus leaving the best rates of the year intact through the close.