MBS Live Recap: Political Headlines Cause Volatility in a Narrow Range

If the only things you could observe about today's bond trading were volumes and "buy vs sell," there were a few moments where things got fairly interesting--especially after 2pm.  That's when the biggest volume and the biggest movement of the day occurred.

While there were several headlines in play at the time, it was Trump's off-the-cuff reference to a surprise economic development bill that would be announced "later on," after sufficiently focusing on "tax cuts and some other things right now," that most clearly rocked bond markets.  

"Rocked" is a relative term, to be sure.  If you wanted to talk up the headline, you could point out that it resulted in a bigger single minute of volume in Treasury Futures than last week's very important CPI numbers.  If you wanted to offer a caveat or two, you could point out that bonds didn't really move much in that minute, and that last week's CPI numbers created vastly greater sustained momentum.  Even so, it was the highlight of the afternoon, and it pushed bonds gradually to their weakest levels of the day.

Refreshingly, 10yr yields held below the important technical ceiling near the 200-day moving average (also the high volume pivot point from the September 27th tax plan announcement sell-off) at 2.314%.  Technical indicators didn't reverse course after Friday's positive shift, but they would threaten to do so if we lose a similar amount of ground tomorrow.  The current showdown is between that 2.314-ish ceiling and a floor of 2.28%, both in terms of 10yr yields..

Fannie 3.5 MBS held above 103-00, and we never saw quite enough weakness for negative reprices among mortgage lenders.