MBS Live Recap: Trend Remains Unfriendly; Highest Yields in 3 Weeks

Treasury yields hit their highest levels in exactly 3 weeks today with little apparent motivation.  Indeed, volumes remained lower than recent averages and movement arrived in line with opening and closing bells for various markets (9:30am NYSE open and 3pm CME close).  This suggests a general lack of fundamental motivation for the weakness, relegating it to the status of "correction" (i.e. bonds are just going through the motions).

We'd been on the lookout for a correction for a few weeks, given that bonds had been trending toward lower yields in a calm, linear fashion for the better part of 2 months.  This week provided a good opportunity for that correction, and now the only question is how long it lasts.  How high will traders need to push rates before the dominoes are reset?

10yr yields hit the 3pm close roughly 3bps higher at 2.195% and Fannie 3.5 MBS were only 3/32nds lower at the same time.  In other words, it was yet another day where MBS outperformed Treasuries.  While that's not uncommon during sell-offs, it's still nice to see during this one.  In fact, today's rates were slightly lower than yesterday's for most lenders.  That's a timing issue, for the most part, and we'd expect rates to move back up tomorrow morning unless bonds improve overnight or after the 8:30am CPI data.