MBS Live Recap: Bonds Take Pre-Fed Lead-Off (In Wrong Direction)

Imagine you manage a baseball team.  Let's say it's little league, because what follows probably wouldn't happen in the bigs.  You're working with your kids on leading-off and stealing bases.  One of your players lucked into a bean ball and has been on 1st base for several pitches in a game that has otherwise been pretty rough.  But hey!  At least you have a kid on base now!  Maybe he or she will be able to steal a base or two.

You shout: "OK, remember what we worked on in practice with leading-off!"

Instead of inching toward second base, your player starts walking back toward home.

If that's not a clear analogy, your base-runner is the bond market.  It's not uncommon to see bonds take a lead-off ahead of the next at-bat--especially when it's the Fed that's coming up to the plate.  In this case, this isn't the sort of lead-off we'd hope for, but it's one we occasionally see nonetheless.

The damage was somewhat livable earlier in the day as yields were only up 2-3bps.  But the last hour of trading saw bonds turn up the selling pressure and 10yr yields rose more than 4bps to 2.90%.  None of the weakness could be sourced to any event or headline apart from anxiety and position-taking ahead of tomorrow's Fed Announcement.