MBS Live Recap: Bonds Relieved by As-Expected GDP
The consensus for today's GDP reading among forecasters was for a big increase to 4.1% or 4.2% depending on who does your data aggregation. Either way, that's a big jump from the previous reading of 2.0% (now revised to 2.2%). When key data is seen rising that much, economists have a tendency to undershoot the jump. Traders know it. As such, they get in position for an even bigger move than the forecast suggests.
When GDP merely came in "as-expected," bonds breathed a sigh of relief with a modest rally. It was more of a token, really, as yields never threatened yesterday's lows. Stocks confirmed the anticipation with by selling-off at the open (i.e. stocks were also expecting a bigger number, and thus gave up ground when it was "only" 4.1%).
Next week is a minefield of data and events for bonds. While 10yr yields were able to find a ceiling right in line with early June highs just under 3%, anything is possible if next week's data is cohesive. In other words, if multiple reports suggest the economy strengthened in July, it wouldn't be a surprise to see 10's move up and over 3%. Conversely, if the data cools. that early June ceiling could be reinforcedb.