MBS Live Recap: Stock Losses Helped But Bonds Had Their Own Limits

Bonds entered the domestic session feeling a bit down on their luck.  There was some general weakness early in the overnight session, but just before 8am, European Central Bank (ECB) sources were quoted (anonymously) as generally approving of the market's consensus for policy tightening.  Specifically, the sources didn't push back on the view that the ECB should stop buying bonds later this year or that it should execute its first rate hike of this cycle some time in 2019.

Granted, that wasn't huge news (after all, it was the market's "consensus" that the ECB sources were responding to in the first place), but it was enough of a development to leave 10yr yields several bps weaker to begin the day.  

Relief came from heavy losses in stocks which pulled bond yields lower  as investors sought safer havens.  Headlines focused on Facebook--something I only bring up to suggest a certain absence of permanence or fundamental significance behind this particular sell-off.  Bonds may agree with that cautious assessment as they broke away from stocks around noon and refused to move any lower in yield after 10yr Treasuries began edging into positive territory on the day.

Bonds then sold off modestly into the close with 10yr yields ending around 1bp higher and MBS down less than an eighth of a point.  Due to the timing of morning rate sheets, most lenders ended up repricing for the better with the late morning gains.  

In the bigger picture, all of the above fits nicely into the same old narrative of "consolidation ahead of Wednesday's FOMC events."