MBS Live Recap: Bonds Starting to Gather Momentum Again

Bond markets are matching their best 3-day performance in over a month with today's stronger closing levels.  Unlike the previous examples, the current 3 days have resulted in the biggest move lower in yields from the previous day's highs.  Pretty confusing sentence... let me explain.  

Friday's high yields were just over 2.40% in 10yr Treasuries and today closed at 2.32%--an 8bp improvement.  The previous corrections were good for a 7bp and 1.5bp improvement using the same measurement rules.

The frustrating thing is that we have no idea whether or not to be excited about that until we see tomorrow morning's CPI data.  It has been and continues to be this week's data highlight.

As for today, the PPI data did a small amount of damage in the morning as the "core" indices (which strip out food and energy prices) were stronger than expected.  Bonds recovered fairly quickly and were soon reacting to a fairly strong 30yr bond auction as well as headlines that suggested a small earthquake in North Korea may have been a nuclear missile test.

Despite the improvement, 10yr yields continue avoiding a break below the 200-day moving average that's served as a floor in October, and even then, they haven't come remotely close to moving outside last week's range for better or worse.