MBS Live Recap: Bonds Under Pressure After Stronger Econ Data

From a calendar standpoint, there were two notable features today.  It was the first trading day in September--a month that often sees "something new" happen after bonds trudge through the summer doldrums.  It was also notable due to the scheduled economic data, which saw ISM Manufacturing hit the best levels in 14 years.  Neither turned out to be bond-friendly!

The super-strong econ data is super easy to understand in terms of of "not being bond-friendly."  After all, strong data is a long time nemesis of low rates and ISM is among the few top tier reports after the mighty NFP.  As such, it's no surprise to see rates moving higher after a 14-year high in ISM Manufacturing.

But rates were already under pressure before ISM came out.  That's where the plain old calendar comes into play.  8:20am was a focal point for the morning weakness (i.e. that's clearly when it began).  8:20am is also the CME Open, where much of the bond market begins trading in earnest for the day.  When we see noticeable movement and volume at 8:20am, it generally means traders were set to make certain trades this morning, regardless of trading levels or overnight developments.  In today's case, it just so happened that those "new month" tradeflows pushed rates in the same direction as the ensuing econ data.