MBS Live Recap: Nothing to be Mad About, But...

Bonds rallied today for the first time all week, and fairly well at that!  10yr yields fell more than 5bps and Fannie 3.5 MBS rose nearly 3/8ths of a point.  Not much to be mad about there, right?

Indeed, there's nothing to be mad about, but there are all sorts of reasons to remain cautious.  The rally was driven by a combination of European political drama and short-covering in US bond markets.  Here's an external link that does a better job than I can of explaining the Eurodrama quickly.  And here's a homegrown link the goes into greater detail on short-covering.

The day's best gains were seen during the 2nd half of the European session (which effectively ends at noon ET), but short-covering kept the positive trend intact through the domestic close.  To reiterate what I said earlier in the day: European political drama and short-covering don't add up to solid evidence for a meaningful bounce in rates.  That doesn't mean we can't get such a bounce--simply that today is no indication of that in and of itself.