MBS Live Recap: Bonds Claw Back to 'Unchanged' After Weaker Start

Bonds were quite a bit weaker in the overnight session.  According to the average media report, this was in response to Syria-related developments.  The "logic" was that because the US had launched missiles into Syria WITHOUT sparking military escalation with Russia, that the whole Syria situation would just calm down from here.  Again, you're being asked to believe that the announcement of a US air strike in Syria implies deescalation of conflict in Syria. 

If you're not quite on board with that, don't worry, you're not alone.  I'm right there with you, and while I would admit that Syria-related headlines have had some effects over the past week, there are certainly other things on the minds of bond traders.  

Overnight, the focus was on Europe at the open (European open at 3am).  A spike in German Bunds led US Treasury yields quickly higher.  That accounted for a bit more than half of the overnight weakness.  We can assume there had been some preemptive selling associated with today's big corporate bond launches as well.

The 8:30am econ data (slightly stronger Retail Sales in this case) didn't have a big initial impact, but was arguable net-positive for bonds due to the weaker core reading.  Bigger moves followed the 9:30am NYSE open, which has been a common occurrence in the past few sessions.  Further improvements came after the end of the European session--not a huge surprise considering Europe was a net-negative for bonds in the overnight session.  By the end of the day, 10yr Treasuries had nearly broken even and Fannie 3.5 MBS were up 1/32nd of a point.