MBS Live Recap: Several Reasons Bonds Tanked Today

At first glance, today was all about a de-escalation of yesterday's Syria rhetoric from Trump (re: "missiles").  Given that we were able to credit yesterday's news for helping bonds improve, it isn't too much to ask to believe today's news could push the other direction.  But this didn't end up being the day's only market mover for bonds, and possibly not even the biggest.  And while I'll stop short of calling it a red herring (it definitely had an impact impact), there were bigger fish to fry.

The biggest was today's Treasury auction process.  Investors are always somewhat anxious about auctions.  With debt issuance increasing (due to fiscal policies... stuff like the tax bill), investors are that much more anxious (after all, Primary Dealers are flat out FORCED to bid).

Traders mitigate this anxiety by pushing rates higher heading into the auction process (higher rates = lower prices = easier to bid at auction).  We sometimes refer to this as "concession," and it was the the order of business in bond markets for much of the mid-morning and early afternoon hours.  It also helps explain why bonds were apparently willing to trade the "Syria news" so much more aggressively than stocks.

Bottom line: the geopolitical back-and-forth didn't help, but the bond-specific challenges made the day what it was.