MBS Live Recap: Bonds Battle Back After Old-Fashioned Sell-Off

The overnight session and early morning hours saw a good, old-fashioned economic-data-driven sell-off in bond markets.  Asian and European data were  both stronger.  That resulted in about half of the day's total damage for longer-term bonds.  The biggest market mover of the domestic session was the ADP Employment report, which was much stronger than expected (250k vs 190k forecast).

"But wait!" you say, "I thought bond markets weren't reacting to econ data these days?!?"  

You're right.  They're generally not.  But there's also not much to base trading decisions on at this time of year.  We're still waiting for full liquidity to return after the winter holiday break.  Moreover, with much of the East Coast on deep freeze, normal market operations are further inhibited (in terms of personnel, not infrastructure).  

The absence of major, underlying conviction was evident in the supportive ceilings seen in 10yr yields.  They stopped right in line with the week's previous highs near 2.49%.  Then moved all the way back down into the 2.45's by the close, and Fannie 3.5 MBS managed to get back within an eighth of a point of Yesterday after being a quarter point weaker this morning.