MBS Live Recap: Nice While It Lasted

Yesterday's massive stock market rout was enough to coax reluctant bond yields to the lowest levels since the end of January.  Given that the end of January occurred a week ago today, that gives you an idea of just how lopsided the trend has been (i.e. a seemingly epic 14bp rally only gets you back to rates from a few days ago, and at the time, those rates were the highest in several years).  

The video in today's MBS Live Huddle breaks down just how much movement it took in stocks to get the desired effect in bonds.  The cliff notes are as follows: S&P futures fell more than 7% while 10yr futures prices (the best apples to apples comparison) rose less than 1.5%.  In other words, bonds really didn't show up to rally yesterday, and it was only the buckets of cash falling out of the stock market that did the trick.

There was always a risk that stocks would stabilize today, and that's exactly what happened.  That means we did NOT get what we needed in terms of technical confirmation of a bond market reversal.  Specifically, we wanted to see technical floors being broken for more than a single day.  Instead, most of today's movement reinforced those floors--especially the important mid-2.6% range which acted as a key ceiling on the way higher 2 weeks ago. 

Not only did we get negative technical moves today, but they occurred in staggeringly high volumes.  The only saving grace is that bonds weren't exceptionally quick to move back to yesterday's highs.  Even so, it's not safe to expect we won't see those highs in the coming days.  If we don't, we can go from there, but for now, stay safe.