MBS Live Recap: After Strong Start, Bonds Get Stronger on Tax Reform Ambiguities

Bonds began the day in stronger territory, generally riding a wave of momentum from late last week on fresh speculation that Trump would nominate Jerome Powell to Chair the Federal Reserve.  Of the two frontrunners, Powell is seen as more accommodative.  As such, stocks and bonds tend to enjoy it when Powell's chances are looking up.  

US and German inflation data helped facilitate further bond market improvement in the morning hours, not to mention traders simply being lined up to buy more bonds after certain technical benchmarks were broken (like 2.42% in 10yr yields).

The morning's biggest news and biggest market mover concerned tax reform.  Sources were cited saying that the corporate tax rate of 20% could be phased in by 2022, as opposed to being implemented immediately.  Any knock on tax reform is a boon to bonds and the bane of the stock rally.  Markets reacted accordingly with stocks selling off fairly sharply and bonds merely extending the already-decent gains.

10yr yields hit the 3pm close more than 4bps lower, just over the 2.37% technical level.  Fannie 3.5 MBS gained a quarter of a point as of 3pm, but have added at least a tick to those gains as I'm writing this (just after 4pm ET).  

The biggest news of the week--the thing everyone's waiting for--continues to be confirmation from Trump himself that Powell will get the Fed Chair nomination.  that would go a long way toward solidifying recent technical ceilings for rates.