MBS Live Day Ahead: Bonds Near Summer's Best Levels Ahead of Fed Minutes

News regarding Cohen's plea deal came out right as futures markets were closing yesterday.  There were only 15-20 minutes for a reaction, and we wouldn't normally expect to see a full-fledged reaction at that time of day anyway--especially during this time of year.  That left some uncertainty as to how today would begin, but bonds ended up being right in line with yesterday's post-Cohen levels a few minutes into domestic trading.

Volumes have been far from extreme, suggesting markets aren't incredibly interested in this drama until and unless it officially involves the president.  Still, they're interested enough to help push bonds right up to the edge of their best levels of the summer.  The next major milestone would be a break below 2.82% in 10yr yields.

If that ends up happening, there's some small chance that today's Fed Minutes could push us over the edge initially, but the probability of such a thing isn't good.  This round of Fed minutes refers to a meeting that produced an incredibly boring Fed Announcement 3 weeks ago.  We know most of them favor 2 more hikes this year and that some only want 1.  We know they will continue reducing their balance sheet for now. 

The only potential surprises would be a discussion about slowing the pace of rate hikes due to emerging market concerns (because subsequent Turkish drama would imply the Fed will be even more concerned next time), or some sort of reassessment of what the eventual neutral rate looks like.  If it's 2-3 hikes away, that would be bond-positive.  If it's 5+ hikes away, not so much...