MBS Live Recap: Bond Rally More Coincidence Than Causality

We've discussed the tenor of Thanksgiving week in bond markets being more to do with serendipity than traditional "cause and effect" relationships.  That means the events and data on the calendar that typically push and pull on bonds throughout the course of the day are less relevant than normal.  Instead, it's the sometimes random, sometimes counter-intuitive tradeflows preceding a 4-day weekend that set the tone.

And sometimes the seemingly random trades DO happen to line up in an intuitive way with the economic data and events.  Today was one of those days.  Both Durable Goods and Consumer Sentiment provided ways to justify bond buying.  The only catch is that the bulk of bond buying didn't happen in direct response to either data release.  Still, we can at least say the data "didn't hurt" the rally that was already underway.  

The afternoon brought the Minutes from the most recent Fed Announcement.  Let's ask ourselves: what more could the Fed possibly do to convey an impending rate hike in December?  That's right!  Effectively nothing, and markets are already priced for that reality.  In that light, anything the Fed said today could arguably serve as bond buying motivation.  Indeed, bonds improved right after the Fed, but so many traders were already gone for the weekend that it doesn't make much sense to put much stock in that reaction--especially because it didn't carry yields outside the established ranges we've been watching (in a nutshell 2.3-2.4% in 10yr yields).

Bigger decisions will be reserved for the coming weeks as Congress tries to get a passable tax bill on the President's desk before the end of the year (and their year ends halfway through December).